Fed Up?

Charles Plosser is worried.

The Philadelphia Fed President is a member of the Federal Reserve Open Market Committee. As such he helps set monetary policy. In addition to the seven members of the Board of Governors, the Open Market Committee includes the nine regional bank Presidents, five of whom vote on policy in any particular year.

Next year Plosser becomes a voting member, along with Richard Fisher of Dallas, and the Presidents of the Cleveland and Minneapolis Fed. Plosser and Fisher are policy hawks, more concerned about inflation than unemployment—which will change the Fed’s composition, although Janet Yellen’s dovish preferences will dominate policy discussions.

Recently Plosser gave a presentation in which he proposed limiting the Fed’s power to containing inflation, with only a nod towards unemployment and bank oversight. And he recommended restricting the Fed’s discretion in pursuing this, arguing that people have come to expect too much from monetary policy. If the Fed makes a mistake, he fears the resulting backlash will threaten the central bank’s independence—which would be a real problem. Politically independent central banks are a critical component to modern economies.

It’s not often that a key policy-maker proposes limiting his own authority in pursuing a goal. Plosser’s proposal may not go anywhere, but it’s refreshing to see an official acknowledge his own limitations.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2013-11-21T11:04:05+00:00 November 21st, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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