The Federal Reserve may find its monetary policies quickly becoming overly easy if it sticks to the current pace of reductions to its bond-buying program in the face of a growing U.S. economy, a top Fed official said on Thursday.
“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,” Philadelphia Federal Reserve Bank President Charles Plosser said in remarks prepared for delivery to the Official Monetary and Financial Institutions Forum in London.
“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 (Fed’s) forecasts.”
Since the onset of the Great Recession and throughout the more than four years since its end, Fed has kept interest rates near zero and has bought trillions of dollars of long-term assets in order to suppress borrowing costs and boost investment and hiring.
Late last year, in a nod to the improving economic and labor market outlook, the U.S. central bank took its first step toward easing up on the monetary gas pedal by trimming its current round of bond buying and signaling it could end purchases altogether later this year.
But the hawkish head of the Philadelphia Fed worries the wind-down will take too long, if, as he expects, the economy grows about 3 percent in 2014, pushing down the jobless rate to at least 6.2 percent by the end of this year and “plausibly” even below 6 percent.