(IND) Philly Fed boss predicts steady growth in 2014

When Charles Plosser speaks, people listen, even more so now that the president of the Federal Reserve Bank of Philadelphia has a vote on national monetary policy.

So, if you missed it, here is what he had to say Tuesday about 2014: He expects the economy to grow 3 percent, the unemployment rate to decline to 6.2 percent, inflation to drift toward 2 percent, and the Federal Reserve to end its purchase of bonds to spur the economy's recovery.

Plosser made his observations in a speech at a luncheon at the Union League sponsored by the La Salle University School of Business.

His remarks drew particular interest because this year, he will serve as a voting member of the Federal Reserve's Open Market Committee, which sets monetary policy for the nation.

The committee next meets Jan. 28, when it will be certain to again take up the debate on how quickly the Federal Reserve should reduce its monthly bond-buying.

The Fed had been buying $85 billion in bonds monthly. It reduced that to $75 billion last month, citing improvements in the economy.

Plosser had opposed the stimulus program from the beginning - November 2008, when the Fed started buying $600 billion in mortgage-backed securities - so it is no surprise that he is all for its demise by the end of 2014.

"My preference would be that we conclude the purchases sooner than this," he said. "But I am glad that we have taken the first step on the path to ending the program."

In the future, he said, his preferred option for manipulating the economy is adjusting market interest rates.

In this instance, the Fed turned to bond buying after reducing the federal interest rate to zero in what proved a sputtering attempt to restart the economy.

Plosser's take is that the economy, while still lagging, is vital enough to be taken off the life support provided by the bond-buying binge.

"As we enter 2014, I think the bottom line is that the economy is on better footing than it has [been] for several years," he said.

As evidence, he rattled off some statistics:

Real output grew at a 4.1 percent annual rate in the third quarter of 2013, the strongest gain in two years.

Personal consumption grew at a 2 percent annual rate in the third quarter.

Firms added an average of 182,000 jobs per month last year, and unemployment dropped 1.2 percentage points.

"I anticipate overall economic growth of around 3 percent, a pace that is slightly above trend," Plosser said. "This is far from the robust growth that many would like to see; nevertheless, it does represent steady progress and an improving economy."

Source: Philly.com