* Philly Fed's Plosser: Curtail QE2 if economy outperforms
* St. Louis Fed's Bullard: QE2 can be adjusted if needed
* Bullard: QE2 benefit outweighs risk; Plosser unconvinced
By Emily Flitter and David Lawder
ROCHESTER, N.Y./WASHINGTON, Dec 2 The U.S.
Federal Reserve's controversial $600 billion bond buying
program is subject to regular review and can be adjusted if
needed, two Fed officials said on Thursday.
Philadelphia Fed Bank President Charles Plosser said he
remained skeptical the asset purchases would do much to lift
the economy, but the central bank may need to stop short of
buying the full $600 billion if economic growth exceeds
His counterpart at the St. Louis Fed, James Bullard, was
more optimistic that it would be effective, but also said he
had not supported setting the $600 billion figure in advance.
He called that number "forward guidance," which could be
adjusted based on economic data, and said he would have
preferred the Fed make determinations on the size of asset
purchases from meeting to meeting. [ID:nWBT014260]
Plosser, speaking at an economic seminar in Rochester, New
York, said if bond buying doesn't deliver the hoped-for
economic benefits, he would "not infer that we merely need to
increase the size of the program." [ID:nWAL2NE6U6]
Instead, that would be a signal for the Fed to rethink its
analysis of the program's costs and benefits.
"If the economy grows more quickly than I currently
anticipate, the purchase program will need to be reconsidered
and perhaps curtailed before the full $600 billion in purchases
is completed," Plosser said.
Fed purchases of Treasuries: r.reuters.com/tuw63q
Fed doves, hawks, centrists: r.reuters.com/saj69p
The asset-buying program, announced last month, has drawn
complaints at home and abroad. Critics worry it will weaken the
dollar, spawn asset bubbles and inflation overseas, while doing
little to help the U.S. economy.
Bullard, however, said dollar depreciation was a "normal
by-product" of easier monetary policy and other countries had
systems in place that can adjust to changes in U.S. policy.
He also said there had been criticism of the asset buying
program within the Fed as well, which he called "healthy
debate" around a difficult decision.
"We should not be the Politburo and we should not be
indecipherable," he told reporters after speaking to economists
in Washington. "I think if there is some dissent within the
committee, I think markets should be aware of that and they can
factor in where the committee might go in the future."
The Fed holds its next policy-setting meeting on Dec. 14,
which will be the last one of the year. Bullard is currently a
voting member on the Fed's policy-setting committee but rotates
out next year. Plosser will be a voting member next year.
When asked how he will vote on continuing the asset
purchases in 2011, Plosser replied, "Since I don't know how the
economy is going to evolve then, I'll have to wait and see."
'HUE AND CRY'
Plosser has a reputation as an inflation "hawk" and
regularly expresses concern that the central bank's swollen
balance sheet could provide the kindling for a dangerous spike
in price pressures.
He reiterated on Thursday the latest round of asset
purchases -- often referred to as "QE2" -- will complicate the
Fed's eventual return to a normal monetary policy stance.
"Because the Fed's monetary policy must be forward looking,
the hue and cry from many quarters may be quite loud when it is
time to act," he said. "Even with the best of intentions, if we
don't act aggressively and promptly, we may find ourselves
behind the curve and at risk for substantial inflation."
Bullard, considered more of a centrist, said inflation
concerns were "legitimate and important" but disinflation was
more worrisome right now.
On a busy day for Fed speakers, Fed Governor Elizabeth Duke
did not wade into the asset-buying debate, limiting her remarks
to the state of consumer credit. [ID:nWAL2NE6U8]
Later on Thursday, Cleveland Fed President Sandra Pianalto
is scheduled to speak on current economic and monetary policy
issues at a college in Ohio.