Improved economic and labor market conditions suggest the central bank should set a fixed dollar amount on its current bond-buying program and end the program when that amount is reached, a top Federal Reserve official said on Monday.
"We cannot continue to play this bond-buying game by ear and risk the Fed's credibility while creating lingering uncertainty about the course of monetary policy,'' said Charles Plosser, president of the Philadelphia Fed, in remarks prepared for delivery to the Risk Management Association.
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The Fed currently buys $85 billion in Treasury and mortgage bonds per month in an effort to boost investment, hiring and growth. It is the Fed's third bond-buying program, but unlike the first two, it is the only one that is open-ended.
Together, the programs have ballooned the Fed's balance sheet to $3.7 trillion.
Setting a fixed amount would make it easier for the Fed to explain the program to the public and eventually to end the purchases, Plosser said, noting that the Fed's decision in September not to scale back the program hurt the central bank's credibility and undermined public confidence in the economy.
Plosser, an inflation hawk who is not a voting member this year on the policy-setting Federal Open Market Committee, said stronger economic conditions are weakening the justification for ongoing stimulus.
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"I believe that labor markets have substantially improved from a year ago and that we should begin to wind down these asset purchases,'' he said, adding he sees the jobless rate, now at 7.3 percent, falling to 6.25 percent by the end of 2014.