Plosser Says Deflation Is No Longer A Concern

See The Fed's Easy Money Skeptic 'Monetary policy can't retrain people. Monetary policy can't fix those problems'. From the WSJ 2-12-11, page A15. Plosser is "the president of Philadelphia's Federal Reserve bank" and "a former dean of the William E. Simon School of Business at Rochester University." Excerpts:

"This mess was caused by over-investment in housing, and bringing down unemployment will be a gradual process. "You can't change the carpenter into a nurse easily, and you can't change the mortgage broker into a computer expert in a manufacturing plant very easily. Eventually that stuff will sort itself out. People will be retrained and they'll find jobs in other industries. But monetary policy can't retrain people. Monetary policy can't fix those problems.""

"Mr. Plosser would like to see a rules-based Fed. "One of the things we have learned about policy is that rules dominate discretion. Limiting discretion— tying the hands of policy makers to only behave in limited dimensions—is usually a good thing."

He adds that the Dodd-Frank banking-reform bill failed to deal with this problem, especially regarding banks considered too big to fail. "There's still lots of discretion in Dodd-Frank," he says. Then he dreams out loud: "It'd be nice if we could get into a debate about what's the best rule to follow."

"His personal pick would be an inflation target. This gets back to credibility, one of his four principles of policy making. "The central bank in a country with a fiat currency is the only entity capable and responsible for ensuring price stability. Nobody else can do it. That's why the central bank exists. So it's got to be that that's job one.""