Yeah, maybe, but let’s at least look at the comment, bold for emphasis:
Philly Federal Reserve Bank President, Charles Plosser, recently stated, “On monetary policy, we must back away from increasing the degree of policy accommodation in a manner commensurate with an improving economy. 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 FOMC forecasts. Even after the asset purchase program has ended, monetary policy will still be highly accommodative… Let me conclude with this thought. Over the past five years, the Fed and, dare I say, many other central banks have become much more interventionist. I do not think this is a particularly healthy state of affairs for the central banks or our economies. The crisis in the U.S. has long passed. With a growing economy and the Fed’s long-term asset purchases coming to an end, now is the time to contemplate restoring some semblance of normalcy to monetary policy. In my view, the proper role for monetary policy is to work behind the scenes in limited and systematic ways to promote long-term growth and price stability. But since the onset of the financial crisis, central banks have become highly interventionist in their efforts to manipulate asset prices and financial markets in general as they attempt to fine-tune economic outcomes. This approach has continued well past the end of the financial crisis. While the motivations may be noble, we have created an environment where ‘it is all about the Fed.’ Market participants focus entirely too much on how the central bank may tweak its policy, and central bankers have become too sensitive and desirous of managing prices in the financial world. I do not see this as a healthy symbiotic relationship for the long term.”
Hmm, whilst agreeing with him 100% in respect of the moral hazard that CBs have created, not to mention the damage caused to the prudent, it’s interesting to note the “guilty plea” to market manipulation, at a time that lesser mortals are facing or have faced jail-time for similar offences.
Whilst admiring Mr Plosser’s insight and pleased that he is a voting member of the FOMC this year, he patently suffers from the same delusion as the rest of the CB brethren in thinking that they actually control market interest rates, which of course, they don’t. One look at the following demonstrates that central banks, the Fed in this case, have never made a pro-active decision in their lives, only re-active.
Kindly note that the FOMC rate has followed the trend of the 2-year treasury yield, not the other way round. Furthermore, the 2-year has jumped by 157% since its low of September 2011 and the 10-year yield (lower window) is ahead by 100% since its mid-2012 record low, despite all of the rhetoric and so called “forward guidance” that rates will remain low until the CB decides. This has nothing to do with inflation, as US CPI has been trending lower for five years now, despite the guidance that QE would re-flate!
The new Fed Chair, Ms Yellen, will have her work cut out in trying to present a united front this year, as Charles Prosser appears to have an ally in Dallas Fed President, Richard Fisher. A statement from Fisher last week included, “The program of bond-buying has lasted too long, and there are signs it is now distorting financial markets and encouraging risk-taking, the stimulus is stoking asset-price bubbles that ‘may result in tears’ for investors acting on bad incentives. ‘There are increasing signs quantitative easing has overstayed its welcome: Market distortions and acting on bad incentives are becoming more pervasive,’ he said of the asset purchases… ‘I fear that we are feeding imbalances similar to those that played a role in the run-up to the financial crisis.”