Charles Plosser, president of Philadelphia Federal Reserve Bank, said on Friday that monetary policy should be data dependent, not date dependent.
Plosser, who has dissented in the Fed’s past two policy pronouncements, said monetary policy should be more rule-like by focusing on data, rather than trying to characterize a date at which the Fed is likely to begin raising interest rates.
“The appropriate way to make policy systematic, or rule-like, is to base policy decisions on observable economic conditions,” he said at the Society of American Business Editors and Writers Fall Conference in New York.
He said while the Fed has a dual mandate to manage fluctuations in employment in the short run and preserving price stability in the long run, the Fed’s monetary policy goals should focus solely on price stability.
“In my view,” said Plosser, “excessive focus on short-run control of employment weakens the credibility and effectiveness of the Fed in achieving its price stability objective.”
In order to improve communication and transparency, Plosser suggested that the Federal Open Market Committee, the Fed’s policy-making committee, could prepare monetary policy reports on a quarterly basis, instead of twice a year.
“It is very clear that he thought the Fed can do a better job communicating,” said Kevin G. Hall, chief economics correspondent for McClatchy Newspapers. “This is a very uncertain time for monetary policy.”
Plosser, the hawkish chief who often criticizes the current loose monetary policy, reiterated his concerns about the “serious risks” of keeping the Fed’s key policy rate close to zero.
“We’re trying to do the right thing,” he said, but added that no one knows what the eventual fallout will be on inflation and asset price stability.
In an interview following his speech, Plosser said the stock market would take care of itself.
“I don’t think the goal of monetary policy is the stock market,” said Plosser. “It is unwise for people either inside or outside [the Fed] to get too focused on the link between monetary policy and the stock market. Too many things affect the stock market beyond monetary policy.”
Plosser, a voting member of the FOMC this year, plans to retire in March 2015. He has cast six dissenting votes at the Fed in the past eight years.
Fed policy-makers are expected to vote to end the central bank’s asset purchases, known as quantitative easing, at their next meeting Oct. 28-29.