Charles Plosser: “I Don’t Know” If Rates Will Rise In June

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Philadelphia Federal Reserve President Charles Plosser spoke with Fox Business Network’s (FBN) Maria Bartiromo about the Federal Reserve possibly raising interest rates. Plosser said, “I don’t know” if we will raise rates in June and that “the data suggests that we either should have already raised rates or at least should be doing it in the near future.  That’s my interpretation of the data.” When asked about the 10-year Treasury Yield, Plosser said, “I think we don’t fully understand that” and “clearly one thing that’s going on, is that as rates are going down in Europe and down in other parts of the world, there’s a flight to the U.S., which is the only place that’s doing well.  So there is safety.”

Charles Plosser on whether he expects the Federal Reserve to raise rates in June:

“You know, I don’t know.  I think for me, the data — the data, forget patience, forget everything — the data suggests that we either should have already raised rates or at least should be doing it in the near future.  That’s my interpretation of the data.  What the committee will choose to do obviously I don’t have any idea.  The data will ultimately drive them.  But, for me, some of the words we put in the statement, the language we used, make it difficult for us to follow the data in a timely way, I believe.”

Charles Plosser on the reason the 10-year Treasury Yield is where it is:

“Well, I think we don’t fully understand that.  I think there’s clearly one thing that’s going on, is that as rates are going down in Europe and down in other parts of the world, there’s a flight to the U.S., which is the only place that’s doing well.  So there is safety.  There is prospects for growth in the U.S., unlike there are in some other places around the world.  So I think there is flight to quality, a flight to yield, and a flight to safety.“

Charles Plosser on deflation as a risk for the US economy:

“I don’t see deflation as a risk in the U.S. economy overall.  Certainly we’ve had disinflation, we’ve had lower inflation, partly — largely because of energy prices falling.  And if you remember back in 2011 and 2012, inflation reached almost 4 percent briefly because energy prices were rising.  Well, we’ve got to look through that.  We didn’t react to that; we have to look through the fall of energy prices.”

Charles Plosser on the present state of the economy:

“Well, I think the jobs numbers looked obviously pretty good.  I think one of the most impressive things about it was not the most recent number, because we know that gets revised.  But the revisions to the previous two months were very positive and very strong.  So I think there’s a — we have a good string going here in jobs numbers.  Over 200,000 jobs per month for 12 months now.  That’s pretty extraordinary.”

Charles Plosser on the strong points in the country right now:

“Well, I think in general the strong points tend to be in consumer products.  They tend to be in manufacturing areas.  They tend to be in many service areas as well.  I think the places where we see weakness that people express concern about, we wish housing were doing better.  But it’s still growing.  It’s growing steady.  I don’t want to see housing back where it was in 2007.  I don’t know about you, but that didn’t end very well…That one didn’t end very well.  So housing is a little weak.  CapEx from businesses is on the soft side.  Those areas are areas of concern.  But in general, I think the economy is doing pretty well.  It’s almost behaving kind of in a normal fashion.”

Charles Plosser on going back to normalized interest rates:

“Well, zero interest rates are extraordinarily policy actions and they’re designed, I think, for a crisis time.  We’re not in crisis anymore.  So I think we need to seriously contemplate moving away from crisis-style monetary policy and begin the process of normalization.  We can raise rates modestly and still be very accommodative.”

Charles Plosser on the overseas economy impacting the US economy:

“Well, there are two ways.  It impacts through Europe is weak.  Europe’s problem is not a monetary problem anymore than the United States problem is a monetary problem.  They’ve got low potential growth.  And they need to do something about the structural issues in Europe to fix that.  The issues with Greece are partly fiscal issues, which are really not, again, monetary issues.  And Europe still has a lot of challenges to face.  The trade channels — normally when Europe is weak, the trade channels through which that affects the U.S. economy are still pretty modest.”

Charles Plosser on whether the Euro is a failure:

“Wouldn’t say — again, the euro may not be a failure.  The question is whether or not the fiscal policies may be a failure.”

Charles Plosser on Fed data suggesting rate raises:

“Yes, well, I think that’s right.  I mean, if you recall, in December when we put the word “patient” in there in our statement, I voted against it because I think it was not helpful.  It was tying our hands in ways that I thought we needed to be more data dependent.  And now we’re back to this sort of date based — is it one meeting, two meetings, six months, three months.  That doesn’t serve us very well and so I wish we had never put it in there.  But now we have to figure out how do we transition out of it?  And that’s going to be a challenge.”

Charles Plosser on calls to audit the Federal Reserve:

“The Congress does have oversight of the Federal Reserve.  I think the question, this notion that they want to audit not our financials — our financials are pretty much — we publish our balance sheet every week…It’s out there.  Our policy deliberations, the transcripts are available after five years.  What really the debate is about, is about auditing policy decisions in real time, and that’s scary because what that says to me is that you are going to have political interference in the short term to try to influence and shape policy decisions when in fact monetary policy works very long lags.  We don’t know whether a policy decision is the right one or the wrong one maybe for five or six years.  And so to sort of second-guess and put political pressure on the Fed to make decisions in the short — for short-term political reasons I think would be very dangerous.”

Charles Plosser on the Federal Reserve unwinding the balance sheet:

“It’s probably take a long time.  And, yes, I am worried.  I’m worried about the unintended consequences of the size of balance sheet and the consequences for us unwinding it.  I said very early on, as we did quantitative easing and kept growing our balance sheet, one of my concerns was not growing it, was shrinking it, and what the implications of that are going to be.  And frankly the jury is still out as about how big of a challenge that’s going to prove to be.”

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