December 2, 2011, 10:43 AM ET
Fed’s Plosser Worried About Rising Pressure on Central Banks to Monetize Debt
By Michael S. Derby, wsj.com
A key Federal Reserve official warned Friday of wavering commitments to keep inflation contained among government officials in the U.S. and elsewhere, in what he views as a worrisome development.
“Despite the well-known benefits of maintaining price stability, there are increasing calls to abandon this commitment in both Europe and the U.S.,” Federal Reserve Bank of Philadelphia President Charles Plosser said. “This is a disturbing trend that risks undermining the independence of the central bank to control monetary policy and its ability to preserve a credible commitment to price stability,” he said.
The pressure on central banks to do something in a time of large scale budget deficits in many major nations is not a new impulse. “History suggests that governments often resort to the printing press to try to escape their budget problems,” Plosser said, explaining “we all understand that this option is a recipe for creating substantial inflation.”
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In the U.S., the policy actions pursued by the Fed over the course of the financial crisis have complicated how many observers understand the central bank. “The Fed and other central banks have already embarked on a path that has blurred the distinction between monetary policy and fiscal policy” and made many think these institutions can do something to fix government borrowing problems.
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Full story: http://blogs.wsj.com/economics/2011/12/02/feds-plosser-worried-about-rising-pressure-on-central-banks-to-monetize-debt/
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