Philly Fed’s Plosser on limitations of monetary policy

Charles Plosser, the president of the Philadelphia Federal Reserve, on Monday said more active use of monetary policy will provide only limited benefits to the economy and could do more harm than good in the long run.

Speaking at conference at the Central Bank of Chile in Santiago, Plosser said: "The notion persists that activist monetary policy can help stabilise the macroeconomy against a wide array of shocks, such as a sharp rise in the price of oil or a sharp drop in the price of housing. In my view, monetary policy's ability to neutralise the real economic consequences of such shocks is actually quite limited."

Plosser said that although monetary policy could sometimes temporarily stimulate the real economic activity in the short term, it was limited in its ability to hasten the adjustment. Plosser said attempts to stabilise the economy would, more likely than not, end up providing stimulus when none is needed, or vice versa.

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