Fed Chief Plossner: No Need for US to Get in a Dither over Europe

       It has been argued that the thing that threatens Obama's re-election more than anything is what of course he has least control over-what happens in Europe. According to Philadelphia President Charles Plosser there is no need for us to worry. Evidently bifurcation is real:

       "There's absolutely no reason for people in the United States to get all in a dither," Federal Reserve Bank of Philadelphia President Charles Plosser said in an interview with The Wall Street Journal. "

       http://online.wsj.com/article/SB10001424052702303807404577432081581842826.html?mod=WSJ_WSJ_US_News_5

       Indeed short term insecurity actually may even be in our interest: 

       "Mr. Plosser said that in the short run, uncertainty in Europe might even work in the U.S. economy's favor, via lower U.S. interest rates and energy prices."

        "Worries over Greece could lead to more global investment funds being parked in the U.S., boosting liquidity, Mr. Plosser said in an interview in Eltville, in the wine-growing region near Frankfurt, where he was attending a conference sponsored by the German Bundesbank."

        "He said it was "not an unreasonable argument" that lower U.S. borrowing costs and falling gasoline prices in response to the European crisis could, in the near term, outweigh the drag on the U.S. economy from lower stock-market values."

        So according to Plosser we will see bifurcation-the US economy can continue to recover and grow even with Europe hanging off a cliff:

        "Despite the uncertainty emanating from Europe, Mr. Plosser expects U.S. gross domestic product to expand by 2.5% to 3% this year and next, and the unemployment rate to drift gradually lower. Against that backdrop, central-bank interest rates would need to rise, he said."

     "As long as that's continuing, then I don't see the case for [an] ever-increasing degree of accommodation," he said.

      He is as is clear a hawk, however he doesn't see inflation as a short term problem:

       "Mr. Plosser is considered one of the Fed's most strident inflation fighters. Still, even with annual consumer-price growth above the central bank's 2% target, he doesn't see inflation as a short-term risk, noting that lower energy prices should bring the rate down. The risk he sees is longer term."

     "We have $1.5 trillion in excess reserves. Inflation is going to occur when those excess reserves start flowing" into the economy, he said.

      We certainly have seen gas prices come down-though over the last 10 years oil prices have only lowered when the market is selling off.  We have already seen that US banks are benefiting from the fears over Europe. While I don't share his hawkishness let's hope he's right about bifurcation.