Fed’s Plosser: We May Need to Raise Rates Sooner Than Expected

“The U.S. economy is approaching the Fed’s economic targets faster than expected and might push the central bank to accelerate plans to increase interest rates, Philadelphia Federal Reserve Bank President Charles Plosser said on Tuesday.

Plosser said he had increasing confidence in economic growth, and addedthat inflation was trending higher and unemployment likely to fall faster than many of his central bank colleagues project.

“The current data suggest economic strength is fairly broad-based,” Plosser, who is a voting member of the Fed’s policy-setting committee this year, said in morning remarks at the Economic Club of New York.

While he supported the Fed’s most recent policy statement, which seems to place an initial interest rate increase sometime next year, Plosser said he had “growing concerns that we may have to adjust our communications in the not-too-distant future. Specifically, I believe the forward guidance in the statement may be too passive.”

Using different variations of what is known as the Taylor Rule, for example, Plosser said the current economic projections of Fed officials would produce a target interest rate of anywhere from 1.5 percent to as much as 4 percent by the end of next year—higher than that currently expected by most policymakers. Depending on economic conditions, the appropriate rate could even be as much as 4.7 percent…..”

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