Fed’s Plosser and Fisher will be retiring
Charles Plosser, Philadelphia Federal Reserve Bank President, has announced that he going to retire next year. He has been at the forefront of criticizing the central bank’s very ‘lax’ monetary policy.
His departure will ease the pressure on the Fed to increase rates more quickly.
Plosser has officially expressed his disapproval of policy measures six times throughout his eight years working at the Fed. Two of these disagreements were at the last two central bank’s meetings.
Plosser has often argued that the aggressive easing of monetary policy could be a catalyst for inflation. In July and September he was not in agreement with the Fed’s pledge to keep interests at a low rate (near zero) for a “considerable time” at the end of its bond-buying stimulus program.
According to statement made by the Philadelphia Fed, Charles Plosser will be stepping down from his current position on March 1.
Plosser, 61, could have stayed on until 2016 – Fed presidents are required to retire after the age of 65.
However, according to Plosser’s spokeswoman, ”President Plosser’s decision to retire is a personal one that he has carefully considered for some time.” She added that he has not made any immediate plans about what he will do after his retirement.
The news comes along with the impending retirement of Dallas Fed chief Richard Fisher (who shares similar thoughts about the Fed’s policy) and debates at the policy-setting Federal Open Market Committee may experience a significant change, as both Plosser and Fisher frequently use the public podium to express their hawkish beliefs.
Fisher, 65, said that he will be retiring around April next year.
OSK-DMG economist Tom Lam, said that the absence of Plosser and Fisher will certainly be felt.” Especially as without their hawkish views, the Fed will be perceived as dovish, which prefers low interest rates to encourage economic growth. Doves believe that the negative effects of low interest rates are negligible in the long-run. However, if interest rates are kept at a low rate for a very long time there is a high risk of inflation soaring.
Millan Mulraine, deputy chief economist at TD Securities in New York, said:
“The retirement of Fisher and Plosser in 2015 could potentially shift the composition at the FOMC in a less hawkish direction.”
However, Mulraine, along with other economists have said that their retirement may be muted, as the people who replace them will probably have like-minded political and economic beliefs.
Paul Dales, senior U.S. economist at Capital Economics, said that “in terms of what this means for near-term policy, not that much.”
However, Paul did note that “on the margins” it could result in the Fed being more inclined to moving slowly when increasing rates.
Since December 2008 the Fed has held benchmark overnight borrowing costs at near zero. It has more than quadrupled its balance sheet to $4.4 trillion after its bond purchase programs.
Financial markets anticipate the Fed to start increasing rates around mid-2015. The current Fed Chair, Janet Yellen, is considered to be a dove as she has fully supported the central bank’s easing monetary policy. However, she will have to one day switch from an accommodative stance to a more restrictive one.
The successors of Plosser and Fisher will be picked by business leaders in the their respective areas.
Comcast Corp Vice Chairman Michael Angelakis, the regional bank board’s vice chairman, said:
“The search committee will look at a broad, diverse group of candidates from inside and outside the Federal Reserve System. We will seek individuals who have the economic and leadership experience to be an effective policymaker and the chief executive of the bank.”