Plosser Said that Fed Should Taper QE as soon as June 18-19 Meeting

In a speech in Stockholm, Philadelphia Fed President Charles Plosser, known for his conservative views, said Tuesday that Fed could taper its asset purchases program as soon as next month due to the improvement on the labor market situation:

“I believe that labour market conditions warrant scaling back the pace of purchases as soon as our next meeting”

Note that next meeting refers to a gathering of the Federal Open Market Committee (FOMC) on June 18-19. He justified his approach warning on Fed credibility:

“Were the FOMC to refrain from reducing the pace of its purchases in the face of this evidence of improving labor market conditions, it would undermine the credibility of the Committee’s statement that the pace of purchases will respond to economic conditions”

He also added that Fed does not need to take into account financial markets’ reaction:

“If we become reluctant to dial back on purchases over concerns of disappointing or surprising markets, then we will find ourselves in a very difficult position going forward”

Finally, even if he talked about inflationary risk, the most serious argument was that:

“Officials should also rethink investment strategy; might be more prudent to invest in shorter-term assets instead of reinvesting maturing and prepaid assets into longer-term ones”

I believe that Plosser view is isolated and Fed members will wait for at least the September meeting before tapering QE. Even if the situation on the labor market has improved since the beginning of the year, a lot of uncertainties on the conomic situation remain such as the impact on sequestration in Q2 and Q3 and the debate on the debt ceiling. Moreover, note that Plosser will not be one of the 12 people voting on the Fed’s decisions until 2014.