PHILADELPHIA (Reuters) - Predicting more economic growth and a further drop in U.S. unemployment this year, a top U.S. central banker said on Tuesday he would prefer a quicker-than-planned withdrawal of policy stimulus.
Philadelphia Fed President Charles Plosser, whose hawkish views are well known at the Federal Reserve, downplayed a weak December jobs report and rebuffed concerns some of his colleagues have voiced over so many Americans having dropped out of the work force.
“As we enter 2014, I think the bottom line is that the economy is on a firmer footing than it has been for the past several years,” he told a luncheon at the ornate Union League of Philadelphia building in downtown Philadelphia.
Plosser, who votes on U.S. central bank’s monetary policy committee this year under a rotating system, predicted joblessness would fall to 6.2 percent by year end, from 6.7 percent last month.
He repeated expectations that inflation, while low at 1 percent now, will rise toward the Fed’s 2-percent goal through the year, and he reiterated a forecast of 3-percent gross domestic product growth.
While the Fed this month trimmed its bond-buying to $75 billion per month from $85 billion, in a nod to a better labor market, Fed Chairman Ben Bernanke has said the program would likely be wound down in cautious, measured steps and probably shelved altogether by year end.
“My preference would be that we conclude the purchases sooner than this,” Plosser said, “but I am glad that we have taken the first step on the path to ending the program.”
Excessively low inflation and excessively high unemployment have prompted the Fed’s very easy policies, including near-zero interest rates, now five years after the end of the Great Recession.
Policymakers such as Eric Rosengren, the dovish head of the Boston Fed, have warned against removing the stimulus too hastily because it could permanently damage the labor market. The percentage of Americans who have dropped out of the work force is at multi-decade highs.
Fed Vice Chair Janet Yellen, who is set to succeed Bernanke on February 1, said in November: “We have all too many people who appear to have dropped out of the labor force.”
But economists at the Philadelphia Fed published a paper late last year that suggested the drop in participation is largely the result of retiring baby boomers, a relatively benign conclusion for the U.S. economy.
“The declines are driven mostly by demographic changes, including the aging of the baby boomers,” said Plosser, adding the labor force participation rate has been dropping since 2000 and “was expected to accelerate.”
He added: “Much of the decline in participation since the start of the recovery can be accounted for by increased retirements and disability.”
Reporting by Jonathan Spicer; Editing by Chizu Nomiyama