Fed's Plosser: Central banks not answer to crisis (by Greg Robb)
WASHINGTON (MarketWatch) - Central banks and monetary policy are not real solutions to the European sovereign debt crisis or the massive U.S. fiscal deficit, said Charles Plosser, the president of the Philadelphia Federal Reserve on Friday. "The only real answer rests with fiscal authorities and their ability to develop credible commitments to sustainable fiscal paths," Plosser said in a speech at the Philadelphia Fed Policy Forum. Plosser said proponents of central bank intervention "are skating on thin ice." While money creation can lower interest rates and provide a modest boost to growth in the short-run, over time it results in higher inflation and higher interest rates, Plosser said. "History has shown that once inflation is unleashed, it is not always easy to bring it back down, especially if the central bank loses the public's confidence and damages the credibility of its commitment to return to price stability," he said.