Monday, March 10, 2014

Federal Reserve policy stances changing ? March 10 , 2014 fed ponderings ...... Fed’s Plosser: Taper pace may be too slow ...... WSJ scribe Hilsenrath: Fed shifting exit strategy ( To exit QE programs and ZIRP , the potential new plan involves paying interest on excess reserves in the banking system, as well as holding down rates through "reverse repos" ) Trial balloons floated today for reaction from markets.....

Fed’s Plosser: Taper pace may be too slow

Central bank may find itself behind the curve, Philly Fed boss says

March 10, 2014, 8:11 a.m. EDT

By Gabriele Parussini and William Horobin
PARISn — The Federal Reserve may have to accelerate the pace of tapering to take into account the economic pickup currently ongoing in the U.S. and the improving forecast for the near future, Federal Reserve Bank of Philadelphia President Charles Plosser said Monday.
“We must back away from increasing the degree of policy accommodation in a manner commensurate with an improving economy,” Plosser told a panel in Paris. “Reducing the pace of asset purchases in measured steps is moving in the right direction, but the pace may leave us well behind the curve if the economy continues to play out according to the FOMC forecasts.”
Based on the latest gross domestic product numbers, the U.S. economy accelerated its pace of expansion in the second half of 2013 from the first half. Real output showed growth of 3.3% from 1.8% in the first half.
As the economic outlook improves, the Fed announced in January its second cut to its monthly purchase program to $65 billion. At the current pace, the FOMC will end the purchase program later this year.
But Plosser noted the pace may not be fast enough.
“If the economy continues to improve, we could find ourselves still trying to increase accommodation in an environment in which history suggests that policy should perhaps be moving in the opposite direction,” Plosser said.
He also raised concerns about how the Fed might ultimately reduce the size of its balance sheet without disrupting inflation or the economy.
“Knock on wood it would all go very smoothly, but you never know,” he said in a question-and-answer session after the speech.

Hilsenrath: Fed shifting exit strategy

By Ben Eisen
NEW YORK (MarketWatch) -- Federal Reserve officials are shifting their outlook on how to normalize monetary policy, according to a report by The Wall Street Journal's Jon Hilsenrath on Monday . After a prolonged period of bond-buying stimulus programs and near-zero benchmark interest rates, the central bank is considering how to exit those policies. The potential new plan involves paying interest on excess reserves in the banking system, as well as holding down rates through a "reverse repos" tool in which the Fed trades with firms outside the banking system who lend it cash in return for interest. That's a contrast with a previous plan to drain reserves from the system by letting Treasurys and mortgage-backed securities roll off its balance sheet as they mature, as well as using other technical tools, according to Hilsenrath.