By Daniel Bases
NEWARK, Del. Feb 11 Assessing the U.S.
economy's underlying economic trends has become more difficult
because of record low temperatures and heavy snowfall across
much of the nation, Federal Reserve Bank of Philadelphia
President Charles Plosser said on Tuesday.
"I suspect it may be another couple of months before we have
a better read on the economy," Plosser said in a speech at the
University of Delaware. He characterized the weather as
On Friday the January U.S. jobs report showed a
smaller-than-expected increase of 113,000 in the number of newly
created non-farm jobs versus the Reuters consensus estimate of
185,000. The unemployment rate dipped to 6.6 percent, a
Plosser, in comments to reporters, said the data was now
"noisier than usual," and therefore would take the latest round
of economic data with "a grain of salt until we get some more
information and presumably get a better read."
Plosser, a voting member of the U.S. central bank's monetary
policy committee this year, reiterated his stance that the Fed
should move faster in winding down its bond purchasing program.
He called the purchases, known as quantitative easing, "neither
helpful nor essential."
He expressed some surprise that inflation has remained well
below the Fed's stated 2 percent target given all of the
quantitative easing, but so far he's not overly concerned.
"We have done over $1 trillion of QE since a year-ago
September and inflation rates have come down. If you are worried
about inflation being too low it is not at all obvious the right
answer is more QE," he said.
Plosser reiterated that even with January's disappointing
jobs report there has been significant improvement in labor
market conditions, to the point where the criteria for ending
asset purchases has been met.
Beyond the asset purchases, the Fed has promised to keep
interest rates near zero until well past the time unemployment
falls below a 6.5 percent threshold, especially if inflation
The central bank is now buying $65 billion per month in
Treasuries and mortgage bonds to depress borrowing costs in the
U.S. economy, which was slow to recover from the 2007-2009
recession but strengthened toward the end of last year.
Plosser reiterated he expects economic growth of 3 percent
in 2014 and the unemployment rate to steadily decline to 6.2
percent by the end of the year.
RATES RISE TOO SLOW
History is not on the side of the central bank when it comes
to raising interest rates in a timely manner and the risk is
financial markets will force its hand, Plosser warned.
He pointed out that historically it is always easier to
lower interest rates to spur economic activity than to raise
interest rates, a mechanism to slow the pace of inflation.
"It is the nature of the beast," he said, adding that he is
concerned the Fed will once again be too late and resist raising
until they are behind investors.
"Financial markets aren't always patient and they could
decide it is time to raise rates and long-term rates start
rising and interest rates start going up and we are going to be
forced to chase them up. Then we will be behind. I don't want to
chase the market, but we may end up having to do that," he told
"We may be late but the consequences may be more
consequential now than in other times," he said.
Plosser reiterated the Fed has a problem communicating what
it will do when economic data meets thresholds such as 2 percent
for inflation and 6.5 percent for the unemployment rate.
Inflation came in at 1.l percent last year and is likely to
move higher toward the Fed's target, Plosser said. On Friday,
the Labor Department's jobs report showed the unemployment rate
fell to a five-year low of 6.6 percent.
"We never said what we are going to do after that point,"
Plosser said, referring to the employment data and economic data