St. Louis Federal Reserve President James Bullard has been out on damage control concerning the release of the minutes from the December ’12 meeting containing hints that QE3 would be terminated by the end of 2013. According to CNBC Bullard stated:

Ending the Federal Reserve’s massive stimulus program will depend on improvement in the economy, not a specific date… Why are we talking about dates? If the economy performs well in 2013, the committee will be in a position to think about going on pause with its balance sheet policy. If it doesn’t do very well then the balance sheet policy will continue into 2014. That’s the beauty of doing it this way instead of doing it by a fixed date.

He was joined yesterday in the effort by Federal Reserve Bank of Philadelphia President Charles Plosser who, according to, said:

The timing for an end to bond-buying is contingent on substantial progress on employment. There is now a discussion about when will we see that. Some people think we will see that sooner rather than later. But we haven’t been very specific. That is a qualitative judgment call.

Plosser, however, is likely not as committed as I would like him to be. While he appears to tacitly agree with his colleagues on the current policy, he gave another interview to Bloomberg that was posted today in which he states:

It is important that the Fed credibly commit to defending that target [2% inflation] either on the upside or the downside. Right now, it would not be good either for our credibility or for the economy for us to have deflation. For the Fed at this point, we have established a target and we need to defend that target… [At the same time] small but steady deflation is not something that we should necessarily be terrified of.

As Bloomberg summarizes his description of the issues in Japan:

While Japan has suffered from falling prices in recent years, that is not the country’s main economic obstacle, he said. A “minus-1 percent labor force growth” and low productivity gains are inhibiting Japan’s economic expansion, Plosser said. “It is not really deflation” that is Japan’s biggest challenge, he said.

Oh no, monetary deflation isn’t a problem. We can have as much of that as we want as long as those imbeciles in the private sector get their rears in gear and start being more productive.

How convenient to be entitled to his own facts. It takes money to make money; and it’s quite difficult to get it when the central bank has the tunicate wrapped around the neck of national income growth in the name of squeezing every last drop of inflation, from sources entirely beyond its control, out of the economy and squeezing it down tighter as a preventive measure at any whiff of the stuff anywhere. Just who do these people think they are, and who is it do they think they serve? Apparently Plosser believes he serves himself.

The Fed doesn’t need to defend its inflation target, Plosser needs to defend his theory and tell us just how monetary deflation isn’t a problem. Or better yet, perhaps he should tell us why the inflation target should be 2% and not 3% or 4% for that matter. And even better than that, perhaps he should explain why the Fed should be defending the target on the down side if deflation isn’t a problem.

Where do people like Plosser come from and how, exactly, do they get a seat on the FOMC? Any system that allows men like him to serve on the monetary policy-making body for the largest economy in the world is a very bad system and needs to be scrapped.