Federal Reserve Bank of Philadelphia President Charles Plosser, an opponent of bond purchases by the Fed, said policymakers should not try to make up for a permanent loss in potential growth caused by the financial crisis.
“Efforts to use monetary policy to offset such permanent shocks and to close what appears to be a gap will likely be ineffective and perhaps even counterproductive,” Plosser said on Saturday in a speech in Philadelphia.
“The real economy must ultimately adjust to such permanent shocks,” he said to the Korea-America Economic Association. “Monetary policy cannot offset the costs or the necessity of such real adjustments.”
Photo: Bloomberg
Plosser, who votes on monetary policy this year, opposed the Fed’s second and third round of bond buying, saying they increased a risk of future inflation while doing little to boost growth. In contrast, Boston Fed President Eric Rosengren, speaking at the same conference, said policymakers should not rush to cut stimulus with inflation below their 2 percent goal.
Consumer prices rose 0.9 percent in November last year from a year earlier, according to an inflation measure watched by the Fed.
The Federal Open Market Committee (FOMC) last month trimmed its monthly bond purchases to US$75 billion from US$85 billion, taking the first step toward unwinding the unprecedented stimulus that Fed Chairman Ben Bernanke put in place to spur growth.
“It was the right move,” Plosser said to reporters. “I would have liked to have done it sooner, but I’m pleased that we have taken this step in the right direction.”
Plosser said he favors tapering bond purchases at a faster pace than US$10 billion per meeting.
“There’s no reason we shouldn’t consider speeding the process up,” he said. “I have no problem with sort of gradually unwinding it, but my preference would be to move a little quicker and end it sooner rather than later.”
He said in his speech that an enduring loss in wealth and output would help to explain why US growth has fallen short of the Fed’s forecasts since the recession ended in June 2009. His comments echoed the view of St. Louis Fed President James Bullard, who in September 2012 said growth may not return to “the bubble-induced, pre-crisis path” because of a permanent loss of wealth.
Rosengren, who cast the lone dissent last month against a Fed decision to taper bond buying, argued against a rapid wind-down in stimulus, noting that the Fed is falling short on its mandate to ensure price stability and full employment.
“With the inflation rate below target and the unemployment rate significantly above target, we believe strongly that monetary policy makers have the opportunity to be patient in removing accommodation,” Rosengren said at the annual meeting of the American Economic Association. “This was one of the motivations for my dissenting vote.”
Policymakers — scheduled to meet on Jan. 28 and Jan. 29 — will probably reduce purchases in US$10 billion increments over the next seven meetings before ending them in December, according to a Bloomberg News survey of economists after the FOMC announced its tapering on Dec. 18. The Fed through bond buying has expanded its balance sheet to US$4.02 trillion.
“Even if we were not significantly undershooting our inflation target, there would still be a significant argument for monetary policy remaining highly accommodative,” said Rosengren, who does not vote on policy this year.
Federal Reserve Bank of New York President William Dudley, speaking during a panel discussion, said more work is needed to explain how bond buying by the Fed has helped support the recovery.
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has appointed Rose Castanares, executive vice president of TSMC Arizona, as president of the subsidiary, which is responsible for carrying out massive investments by the Taiwanese tech giant in the US state, the company said in a statement yesterday. Castanares will succeed Brian Harrison as president of the Arizona subsidiary on Oct. 1 after the incumbent president steps down from the position with a transfer to the Arizona CEO office to serve as an advisor to TSMC Arizona’s chairman, the statement said. According to TSMC, Harrison is scheduled to retire on Dec. 31. Castanares joined TSMC in
EUROPE ON HOLD: Among a flurry of announcements, Intel said it would postpone new factories in Germany and Poland, but remains committed to its US expansion Intel Corp chief executive officer Pat Gelsinger has landed Amazon.com Inc’s Amazon Web Services (AWS) as a customer for the company’s manufacturing business, potentially bringing work to new plants under construction in the US and boosting his efforts to turn around the embattled chipmaker. Intel and AWS are to coinvest in a custom semiconductor for artificial intelligence computing — what is known as a fabric chip — in a “multiyear, multibillion-dollar framework,” Intel said in a statement on Monday. The work would rely on Intel’s 18A process, an advanced chipmaking technology. Intel shares rose more than 8 percent in late trading after the