News Headline Summary

Fed's Plosser says Fed guidance on policy risks stoking inflation

- Fed needs reaction function as policy guidance.
- Fed credibility is imperfect and fragile and forward guidance may have counterproductive effects.
- Promising low rates until after conditions improve could unanchor inflation expectations.
- Managing expectations by communicating likely path of future policy should be used with caution.
- Fed's threshold-based rate guidance is a step in the right direction, does not go far enough.
- Fed vagueness on policy path after economy hits thresholds runs counter to theory.
- Fed should try to identify simple policy rules and be systematic about policy change.
- Fed should identify key economic variables and explain policy in terms of those variables.
- There is little evidence that Fed's guidance on future path of interest rates is boosting inflation expectations.
- Fed's goal is to eventually return to funds rate as policy instrument and shrink balance sheet.
- We can't begin to tighten policy until we stop easing policy.
- It is important to devise mechanisms that tie the hands of future policy makers.

13 Feb 2013 - 01:00 - Fixed Income Bank Speaker - Source: Newswires

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