By Matt Clinch
Philadelphia Federal Reserve President Charles Plosser is “very worried” about the potential for unintended consequences of the Fed’s massive quantitative easing [printing money to supposedly stimulate the economy] program.
Plosser told CNBC that the U.S. was still suffering from “lasting effects” of the recession and “may never return” to its previous growth rates—and warned that policy should not bet on growth returning to previous rates, saying it could be “many, many years.”
With gross domestic product expanding at a 2.4 percent annual rate, according to the Commerce Department last Friday, Plosser said that the country was “pretty close” to its steady state growth and may never get back to where it once thought it could be. “To keep trying to think that we’re going to do that, means that we keep trying to overplay our hand in terms of policy,” he added.
“I am very worried about the potential for unintended consequences of all this action. And it’s very difficult for us to know because we’ve never done this before,” Plosser said, adding that the curbing of this extra liquidity in the global economy would be “very challenging”.
Central banks across the world have followed the Fed’s lead by injecting more cash into the system, with the Bank of England and the Bank of Japan both embarking on QE with benchmark interest rates at record lows. Plosser said that there is a lot of pressure on central banks around the globe and expectations of what these banks can do have risen to “unhealthy highs.”
“The best thing the U.S. can do for the global economy is have a strong economy itself…over the longer run that will make for a much healthily world economy,” he said.
Read more: CNBC
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