Plosser: Fed Should Be Committed to Low Inflation

Philadelphia Federal Reserve Bank President Charles Plosser said on Tuesday that providing more information about the central bank's policy goals could help keep inflation expectations in check and give policy-makers greater leeway to buffer the economy from shocks.

"Because commitment ensures that inflationary expectations are well-anchored, policy-makers can respond to shocks with less fear that expectations will become unhinged, thus enhancing the potential effectiveness of policy to respond to short-term disturbances," he said in a speech to the New York Association for Business Economics.

"There is a realization in monetary policy-making circles, gained through recent advances in monetary theory and the experience of the last 30 years, that maintaining credibility for low inflation is an important aspect of good monetary policy," he said.

Plosser did not discuss the recent economy or monetary policy in his speech.

Plosser also said one way to reduce uncertainty about monetary policy was to state objectives clearly and be transparent.

"It is important to be transparent so that the public's expectations and the objectives of monetary policy are better aligned," he said.

"Achieving this alignment ultimately furthers the central bank's objective of maintaining stable prices while fostering full employment."

Fed policy-makers are considering adopting an explicit inflation target as part of their ongoing communications discussions, a move that is supported by both Plosser and Fed Chairman Ben Bernanke. Some central bank policy-makers oppose such a move, fearing it would restrict flexibility.

Plosser also said it was too early to say anything precisely about the outcome of recent discussions to improve the Fed's communications.

The Fed has kept its benchmark interest rates steady since last June. Plosser is not a voting member of the Fed's rate-setting committee this year.