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CNBC EXCLUSIVE: CNBC TRANSCRIPT: CNBC'S STEVE LIESMAN SITS DOWN WITH CHARLES PLOSSER, PHILADELPHIA FED PRESIDENT, TODAY ON CNBC'S "SQUAWK ON THE STREET"

WHEN: TODAY, MONDAY, MAY 10TH AT 10:50AM ET

WHERE: CNBC'S "SQUAWK ON THE STREET"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview, CNBC's Steve Liesmanspeaks with Charles Plosser, Philadelphia Fed President, today on CNBC's "Squawk on the Street" at 10:50AM ET

All references must be sourced to CNBC.

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Philly Fed President Reacts to EU Bailout

Charles Plosser, president of the Federal Reserve Bank of Philadelphia, talks to CNBC's Steve Liesman about the EU bailout, the future of Wall Street, interest rates and more.

LIESMAN: I'M HERE WITH PHILADELPHIA FEDERAL RESERVE PRESIDENT CHARLES PLOSSER. A PRETTY GOOD TIME TO BE HERE GIVEN ALL THE NEWS THAT'S GOING ON. THANKS FOR JOINING US.

PLOSSER: THANKS FOR HAVING ME HERE.

LIESMAN: LET ME ASK YOU TO COMMENT ON THE NEWS FROM LAST EVENING. YOUR REACTION TO THE PACKAGE FROM THE EUROPEAN CENTRAL BANK AND THE EUROPEAN UNION?

PLOSSER: EUROPE HAS A SEVERE CHALLENGE ON ITS HANDS. FISCAL SUSTAINABILITY OF THE COUNTRIES IN THE EU IS AN IMPORTANT ISSUE. THERE'S CLEARLY BEEN CONCERNS IN THE FINANCIAL MARKETPLACE. THIS IS A PACKAGE THAT'S GOING TO ALLEVIATE SOME OF THESE CONCERNS AND PUT FISCAL SUSTAINABILITY HIGHER ON THE AGENDA FOR MANY OF THESE COUNTRIES.

LIESMAN: WHAT WAS YOUR CONCERN WITH AS U.S. POLICYMAKER FOR WHAT WAS GOING ON IN EUROPE.

PLOSSER: PRIMARILY MY CONCERN WAS WHETHER OR NOT THE FINANCIAL CONCERNS FOR FINANCIAL INSTITUTIONS IN EUROPE WOULD SPILL OVER INTO THE UNITED STATES AND AFFECT THE RECOVERY. HOPEFULLY THE ACTIONS THAT HAVE BEEN TAKEN WILL PREVENT THAT FROM HAPPENING. AND THE FED'S ROLE IN THIS WAS IN PROVIDING -- RENEWING THE SWAP LINES WAS AN EFFORT TO HELP ENSURE THAT DIDN'T HAPPEN.

LIESMAN: YOUR CONCERN WAS MORE WITH CONTAGION THEN WITH THE ACTUAL ECONOMIC EFFECTS OF, SAY, RECESSION IN EUROPE.

PLOSSER: CERTAINLY. RIGHT NOW IT IS. THAT'S PRIMARILY MY CONCERN.

LIESMAN: WOULD RECESSION IN EUROPE, YOU THINK, CAUSE US ANOTHER RECESSION HERE IN THE STATES?

PLOSSER: JUST A RECESSION IN EUROPE WOULD NOT IN MY PERSPECTIVE. IT CLEARLY WOULD HAVE IMPACTED THE UNITED STATES. AND WEAKEN OUR GROWTH PRIMARILY BECAUSE IT WOULD WEAKEN OUR ABILITY TO EXPORT GOODS AND SERVICES TO EUROPE. WITH A WEAKER -- WITH A STRONGER DOLLAR AND A WEAKER EURO, THAT'S ALSO GOING TO HAVE SOME EFFECTS ON OUR EXCHANGES. BUT FUNDAMENTALLY I THINK THAT AS LONG AS CONTAGION DOESN'T OCCUR IN THE FINANCIAL MARKETS AND DISRUPT THE REST OF THE WORLD, FINANCIAL MARKETS, THEN THE EFFECTS SHOULD BE MORE MODEST.

LIESMAN: I UNDERSTAND ALL THIS HAPPENED LAST NIGHT WHEN NORMAL PEOPLE WOULD HAVE BEEN ASLEEP. BUT DOES IT APPEAR TO YOU ENOUGH TO STOP THAT CONTAGION, WHAT'S BEEN PUT IN PLACE?

PLOSSER: I CERTAINLY HOPE SO. IT'S NOT CLEAR. OBVIOUSLY WE WILL SEE IN THE DAYS AND WEEKS TO COME WHETHER OR NOT THE REACTIONS OF THE GOVERNMENTS AND THE COMMITMENTS THAT THEY HAVE MADE ARE ACTUALLY FOLLOWED THROUGH ON. THAT'S WHAT'S GOING TO BE IMPORTANT AT THE END OF THE DAY.

LIESMAN: GIVEN WHAT'S GOING ON IN EUROPE RIGHT NOW, WHAT IS YOUR OUTLOOK FOR THE U.S. ECONOMY RIGHT NOW.

PLOSSER: WELL MY OUTLOOK FOR THE U.S. ECONOMY IS STILL PRETTY UP BEAT AND HAS BEEN FOR QUITE SOME TIME. WE'VE SEEN THREE PRETTY STRONG QUARTERS OF GROWTH OF ABOUT 3.75% NEARLY FOR THE LAST THREE QUARTERS. LOOKS LIKE WE'RE GOING TO HEAD FOR ANOTHER QUARTER HERE IN THE SECOND QUARTER THAT'S GOING TO LOOK VERY SIMILAR. WHO WOULD HAVE PREDICTED JUST IN DECEMBER THAT WE WOULD SEE NEARLY 600,000 JOBS CREATED IN THE FIRST FOUR MONTHS OF 2010? MOST FORECASTERS WEREN'T BOAT. SO I THINK THAT THINGS ARE LOOKING BETTER. THE RECOVERY IS BECOMING MORE BROAD BASED. I'M REASONABLY OPTIMISTIC AS LONG AS NOTHING COMES ALONG TO SORT OF DERAIL THE APPLE CART HERE.

LIESMAN: HAS THE JOB MARKET TRULY TURNED, YOU THINK?

PLOSSER: I THINK IT HAS. I THINK IT HAS.

LIESMAN: WHAT DOES THAT MEAN FOR JOB GROWTH AND THE UNEMPLOYMENT RATE AHEAD?

PLOSSER: WELL I THINK ONE OF THE THINGS WE'RE GOING TO SEE IS UNEMPLOYMENT RATE IS GOING TO RESPOND GRADUALLY BECAUSE WE'RE GOING TO SEE MORE PEOPLE COMING BACK INTO THE LABOR FORCE THAT HAVE EXITED THE LABOR FORCE, EVEN THOUGH WE'LL SEE LOTS OF JOB CREATION. UNEMPLOYMENT RATE IS GOING TO RESPOND MORE MODESTLY. BUT I CAN SEE THE -- SOMEWHERE IN BETWEEN 250 AND 350,000 JOBS BEING CREATED ON AVERAGE DURING THE COURSE OF THE REST OF THIS YEAR.

LIESMAN: YOU'RE WHAT'S KNOWN RIGHTLY OR WRONGLY AS AN INFLATION HAWK. BUT YOU DIDN'T GET THE INFLATION YET. HAVE YOU BEEN SURPRISED? DO YOU FEEL LIKE WE'RE OUT OF THE WOODS IN TERMS OF THE CONCERN ABOUT HOW INFLATION WAS GOING TO BE CREATED FROM THE RISE OF THE FEDS BALANCE SHEET?

PLOSSER: I DON'T THINK WE'RE OUT OF THE WOODS AT ALL IN THAT REGARD. I HAVEN'T BEEN MUCH SURPRISED BY THE NEAR-TERM PERFORMANCE OF INFLATION. I'VE NEVER SAID I THOUGHT WE WERE GOING TO GET INFLATION IN THE NEAR TERM. WHAT I'M WORRIED ABOUT IS EXPECTATIONS OF INFLATION IN THE LONGER TERM. INFLATION DOESN'T MOVE UNTIL MUCH LONG AFTER MONETARY POLICY ACTIONS OCCUR. SO MY CONCERNS ABOUT INFLATION ARE IN THE INTERMEDIATE TO LONGER TERM. WE'RE NOT THERE YET.

LIESMAN: PRESIDENT HOENIG FROM KANSAS CITY WANTS TO BRING INTEREST RATES TO 1% NOW. OTHERS WANT TO SELL. ARE YOU ON BOARD WITH THAT IDEA?

PLOSSER: WHICH ONE?

LIESMAN: SAY THE 1%.

PLOSSER: I THINK, LOOK, INTEREST RATES WE ARE VERY NEAR ZERO. WE ARE IN AN EXTRAORDINARY PERIOD OF ACCOMMODATING MONETARY POLICY. EVEN IF INTEREST RATES WERE AT 1%, THAT WOULD STILL BE PRETTY ACCOMMODATING MONETARY POLICY. THERE ARE SOME ARGUMENTS THAT SOME MIGHT MAKE THAT JUST GETTING AWAY FROM THE LOWER BOUND, A ZERO LOWER BOUND, WOULD HELP MARKETS BEGIN TO FUNCTION BETTER. BUT I DON'T THINK WE'RE NECESSARILY READY FOR THAT, AT LEAST NOT RIGHT NOW.

LIESMAN: OKAY.

PLOSSER: I THINK OUR EXIT STRATEGY IS GOING TO BE IMPORTANT, THOUGH, BECAUSE IT'S GOING TO BE A COMBINATION OF RAISING THE FUNDS RATE, RAISING OUR TARGET INTEREST RATES, IT'S GOING TO BE A COMBINATION OF SHRINKING OUR BALANCE SHEET AND CHANGING ITS COMPOSITION FROM MBS AND TREASURIES TO ALL TREASURIES.

LIESMAN: WE'RE GOING TO TALK MORE IN DEPTH ABOUT THAT. THANK YOU VERY MUCH. WE'LL STAY HERE AND CONTINUE OUR DISCUSSION WITH CHARLES PLOSSER. WE'LL BRING IT TO YOU SOME MORE DURING THE 11:00 AND LATER ON IN "POWER LUNCH."

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