In giving his “testimony” to the NYT:
NYT: You want the Fed to move more quickly toward raising short-term interest rates even as inflation decelerates. Why aren’t you worried that inflation is below your 2 percent target?
Plosser: We’ve all been kind of expecting this given what oil prices are doing. A few years ago when oil prices shot up, we looked through that, and it’s important that we do that now. It’s not been surprising to me that the headline numbers have been soft. The bigger question is what happens in four to six months. Will inflation begin to drift back up toward our target? I think it will. I’m kind of comfortable with that for now. The oil decline does seem to have at least stabilized.
Fact: Plosser in July 2008:
In sum, this year and next will be quite challenging. The economy will grow this year but at a slow pace, and the unemployment rate is likely to get worse before it gets better. At the same time, inflation will be uncomfortably high for a while.
I am more optimistic about the outlook for 2009 and I expect we will see economic growth return to near its longer-term trend. But to prevent recent inflation from continuing(!) to plague the economy and to avoid a rise in inflation expectations, I believe the current very accommodative stance of monetary policy will need to be reversed, and depending on how economic conditions evolve, I anticipate that this reversal will likely need to begin sooner rather than later.
NYT: Your dissents over the last year basically took issue both with the Fed’s communications strategy and with the content of the message. What is wrong with the message?
Plosser: We have had a better economy than we thought it was going to be; we’re way ahead of where we thought we were going to be. As a committee we say we’re data dependent. And if we’re going to be data dependent, we need to explain why we’re ignoring the data, why we’re not reacting to the data. Our forecasts are changing. Why aren’t we changing the message?
Good ridance. Plosser will retire in March!