Philly Fed Pres Plosser (votes on FOMC in '08), in a speech on productivity (Tuesday 25/9), said US trend growth likely to be +2.75% over the next few years. Also said it is 'mistaken' to think FOMC has changed its approach, as the Fed still wants price stability. Fed ease linked to weak employment, declining home prices, moderating inflation, and slow home sales. Incoming info must be "much weaker than already anticipated and accumulate sufficiently to generate another downward revision in my outlook" to cause him to call for more ease. And, if growth rebounds Fed will have to reassess. Fed must be forward-looking and not respond to transitory disturbances. Risks associate with ease include moral hazard and higher inflation. "The reduction in the funds rate runs the risk of higher inflation and expected inflation in the future," Plosser said in prepared remarks at the Laurel Creek Country Club in Mount Laurel, N.J., during a speech on "Invention, Productivity and the Economy."
