Charles Plosser, the President of the Federal Reserve Bank of Philadelphia, gave a speech today at the Cato Institute Conference examining the question: “Was the Fed a Good Idea?” The Fed has been around for 100 years now. Plosser’s speech is titled, “A Limited Central Bank.” He started out by observing that central banks have expanded their role in managing the economy and financial markets:
Yet, in recent years, we have seen many of the explicit and implicit limits stretched. The Fed and
many other central banks have taken extraordinary steps to address a global financial crisis and
the ensuing recession. These steps have challenged the accepted boundaries of central banking
and have been both applauded and denounced.
Plosser will be a voting member of the FOMC in 2015. He thinks that the Fed has taken on too much power and would like to limit it as follows:
• First, limit the Fed’s monetary policy goals to a narrow mandate in which price stability is the sole, or at least the primary, objective;
• Second, limit the types of assets that the Fed can hold on its balance sheet to Treasury securities;
• Third, limit the Fed’s discretion in monetary policymaking by requiring a systematic, rule-like approach;
• And fourth, limit the boundaries of its lender-of-last-resort credit extension and ensure that it is conducted in a systematic fashion.
• Second, limit the types of assets that the Fed can hold on its balance sheet to Treasury securities;
• Third, limit the Fed’s discretion in monetary policymaking by requiring a systematic, rule-like approach;
• And fourth, limit the boundaries of its lender-of-last-resort credit extension and ensure that it is conducted in a systematic fashion.
