Philadelphia Federal Reserve Bank president Charles I. Plosser talked to CNBC's Steve Liesman this morning. about the EU bailout, the future of Wall Street, interest rates and more. Highlights:
Greek bailout: The new European Union financial rescue package, partly backed by a swaps agreement with the Fed, "is going to alleviate some of these concerns and put fiscal sustainability higher on the agenda for many of these countries... A recession in Europe... would weaken our ability to export goods and services to Europe. With a stronger dollar and a weaker euro, that's also going to have some effects on our exchanges.... 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."
U.S. outlook: "My outlook for the U.S. economy is still pretty upbeat and has been for quite some time. We've seen three pretty strong quarters of growth of about 3.75%... The second quarter, that is 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?... (The) 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... "
Inflation: "What I'm worried about is expectations of inflation in the longer term. Inflation doesn't move much until long after monetary policy actions occur... (Maybe) getting away from (zero percent interest) would help markets begin to function better. But i don't think we're necessarily ready for that, at least not right now."
To fight inflation: "It's going to be a combination of raising the funds rate, raising our target interest rates... shrinking our balance sheet" and getting mortgage-backed securities off the Fed balance sheet.