Fed’s Plosser: Fed Should Raise Rates ‘Sooner Rather Than Later’
NEW YORK–Federal Reserve Bank of Philadelphia leader Charles Plosser said Saturday the U.S. central bank will likely need to raise rates "sooner rather than later" to keep the economy running smoothly.
"I am not suggesting that rates should necessarily be increased now," Mr. Plosser said in the text of a speech to be given in Amelia Island, Fla.
That said, preparing to raise interest rates sooner than many now expect "may allow us to increase rates more gradually as the data improve, rather than face the prospect of a more abrupt increase in rates to catch up with market forces, which could be the outcome of a prolonged delay in our willingness to act," the official said.
Mr. Plosser is a voting member of the monetary policy setting Federal Open Market Committee. The official dissented at the central bank’s last gathering in late July, believing the institution needed to stop committing to keep rates very low for well into the future. He wanted the central bank to make the outlook for policy more contingent on incoming data. Mr. Plosser reiterated his case for this change in his speech.
"We have moved much closer to our goals since last December, and, as we do so, the stance of monetary policy should reflect such progress and begin to gradually adjust. That is the essence of being data dependent," Mr. Plosser said. "Our first task is to change the language in a way that allows for liftoff sooner than many now anticipate and sooner than suggested by our current guidance," Mr. Plosser said.
While Mr. Plosser hasn’t found many on the Fed to embrace his view that a rate increase from what are currently near-zero levels are getting closer, a number of central bankers are increasingly willing to consider changes in the guidance about future monetary policy.
On Friday, Boston Fed leader Eric Rosengren, who thinks monetary policy needs to stay very easy, agreed that it is time to change how the Fed describes the monetary policy outlook. In his speech, Mr. Plosser was upbeat about the state of the economy, and he brushed off the soft turn in August hiring, reported Friday.
"I believe consumer and business spending will help real GDP to grow at about 3% for the remainder of this year and next before reverting to trend, which I see as about 2.4%," he said. On hiring, the official said "despite the slowdown in August, job creation has improved markedly this year."
Mr. Plosser also said that price pressures are "drifting" up to the Fed’s 2% target.