“We must back away from increasing the degree of policy accommodation in a manner commensurate with an improving economy,” Plosser told a panel in Paris. “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.”
Based on the latest gross domestic product numbers, the U.S. economy accelerated its pace of expansion in the second half of 2013 from the first half. Real output showed growth of 3.3% from 1.8% in the first half.
As the economic outlook improves, the Fed announced in January its second cut to its monthly purchase program to $65 billion. At the current pace, the FOMC will end the purchase program later this year.
But Plosser noted the pace may not be fast enough.
“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,” Plosser said.
He also raised concerns about how the Fed might ultimately reduce the size of its balance sheet without disrupting inflation or the economy.
“Knock on wood it would all go very smoothly, but you never know,” he said in a question-and-answer session after the speech
IT IS HIGH TIME WE GOT RID OF THIS TAPERING ISSUE ONCE AND FOR ALL AND DEPEND ON THE MARKET FUNDAMENTALS FOR GROWTH AND EXPANSION OF THE MARKET.