By Krista Hughes
WASHINGTON Nov 14 The U.S. Federal Reserve
should have a single mandate of fighting inflation rather than
its current dual focus on stable prices and jobs, a top Fed
official said on Thursday.
Charles Plosser, president of the Philadelphia Fed, said
changing the Fed's mandate and setting strict limits on its
operations would improve the working of monetary policy, which
had stretched out of shape after policymakers sought new tools
to deal with the financial crisis and its aftermath.
Trying to have the central bank do too much blurred
communication and risked a "highly discretionary" form of
policymaking where officials could move the goal posts as they
saw fit, he said.
"I have concluded that it would be appropriate to redefine
the Fed's monetary policy goals to focus solely, or at least
primarily, on price stability," Plosser said at a Cato Institute
conference about the role of the Fed.
Plosser is just the latest Fed official to offer his backing
for a mandate centered on controlling inflation, as opposed to
also steering the economy to full employment. About a year ago,
Dallas Fed chief Richard Fisher and James Bullard of the St.
Louis Fed similarly called for a single Fed mandate.
Other policymakers, including Fed chairman Ben Bernanke and
vice chair Janet Yellen, have defended the dual mandate. Yellen
is expected to do so again on Thursday as she appears before the
Senate Banking Committee, which is vetting her nomination to be
Some Republicans have also called for changing the Fed's
congressionally set mandate to one that focuses solely on
inflation, but those efforts do not have support among
Democrats, who control the Senate, and have gone nowhere.
Plosser, a longtime critic of the Fed's bond-buying program,
said the central bank should limit any asset purchases to U.S.
government debt, selling all mortgage-backed securities in its
portfolio. The purchase price could be the starting point for
working out at what price to sell these, he added.
The U.S. central bank is buying $85 billion per month in
Treasury and mortgage bonds in an effort to boost investment,
hiring and growth, which have quadrupled its balance sheet to
The Fed should also follow strict rules in setting policy to
limit policymakers' discretion and make them more accountable,
For example, the Fed might outline how it would conduct
policy in normal times in its regular reports to Congress, and
if it deviated, be forced to explain how it intended to return
to its planned path.
"My sense is that the recent difficulty the Fed has faced in
trying to offer clear and transparent guidance on its current
and future policy path stems from the fact that policymakers
still desire to maintain discretion in setting monetary policy,"
"Effective forward guidance, however, requires commitment to
behave in a particular way in the future. But discretion is the
antithesis of commitment and undermines the effectiveness of
forward guidance. Given this tension, few should be surprised
that the Fed has struggled with its communications."
Plosser, an inflation hawk who is not a voting member this
year on the policy-setting Federal Open Market Committee, made
no comment on the outlook for the economy or monetary policy in
his prepared remarks.
Economists generally expect the Fed to maintain its current
pace of bond purchases into 2014. Some see a chance of a scaling
back at the Fed's December policy meeting given a strong jobs
report for October, but some policymakers have pointed to very
low inflation as a reason not to rush.
Asked after his speech about the dangers of deflation, or a
spiral of falling prices, Plosser said that mild deflation might
not be such a bad thing and he personally would have preferred
an inflation target lower than the Fed's current 2 percent.
"I'm not nearly as afraid of zero inflation or mild
deflation" as some colleagues, he said.
"The value of the target is the commitment rather than the