Unwinding stimulus will challenge Fed, Plosser says

Federal Reserve Bank of Philadelphia president Charles Plosser, an opponent of bond purchases by the Fed, said the central bank will need sufficient willpower to unwind its $4 trillion balance sheet and curb inflation.

"Technically, we certainly can do that," Plosser said Friday of the Fed's plans to eventually tighten the reins on bank reserves that have grown because of its bond buying. "It's going to be more a question of will than technical capabilities."

Plosser, who votes on monetary policy this year, opposed the Fed's second and third round of bond purchases, saying they increased a risk of inflation while doing little in the near term to boost the economy. He has warned that central bankers may be too optimistic that they can smoothly pull back accommodation, including raising the main interest rate held near zero since December 2008.

"We like to believe that everything is going to be gradual, everything is going to be smooth, and everything is going to be hunky-dory," Plosser said during a panel discussion at an American Economic Association conference in Philadelphia. "History does suggest that the Fed, as an institution, is oftentimes late when it comes to tightening."