Fed's Plosser warns rate hike may come sooner than expected

WASHINGTON Tue May 20, 2014 1:35pm EDT

Philadelphia Federal Reserve President Charles Plosser speaks at the Council on Foreign Relations in New York, May 8, 2014. REUTERS/Brendan McDermid

Philadelphia Federal Reserve President Charles Plosser speaks at the Council on Foreign Relations in New York, May 8, 2014.

Credit: Reuters/Brendan McDermid

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WASHINGTON (Reuters) - A strengthening U.S. economy may force the central bank to hike rates "sooner rather than later" to stay ahead of inflation, Philadelphia Federal Reserve President Charles Plosser said on Tuesday.

Affirming his hawkish stance, Plosser in a Washington speech said the Fed is at risk of falling "behind the curve" in its control of inflation if policy stays at its current loose level as the economy grows and the labor market continues to improve.

He said he sees growth at 3 percent this year, despite a dim first-quarter result that he, along with many Fed members, have attributed to severe winter weather.

Overall the U.S. economy "is on the firmest footing it has been on since the recovery began," Plosser said according to a prepared text distributed ahead of his remarks at a housing conference. He dismissed the first-quarter reading as an aberration and said the "underlying details are...encouraging."

"As we continue to move closer to our 2 percent inflation goal and the labor market improves, we must be prepared to adjust policy appropriately," said Plosser, who currently serves as one of the regional bank members on the Fed's main policy-setting committee. "That may well require us to begin raising interest rates sooner rather than later."

Plosser has staked out a position as among the most concerned about the risk that inflation may become unmoored as a result of the Fed's extended period of loose monetary policy. Interest rates have been effectively zero for five years, and a series of stimulus programs have seen the central bank buy up $1.4 trillion in assets.

It is now winding down its monthly asset purchases and is expected to end them altogether this fall.

Plosser said he felt the steady reduction was moving "in the right direction." But he also said he worried that the Fed, and other central banks, have now become accustomed to the "highly interventionist" role they adopted to fight the 2008 economic crisis and subsequent slowdown.

As conditions return to normal, he said, the Fed and other central banks should move "behind the scenes...restoring some semblance of normalcy to monetary policy."

Plosser said he was optimistic about the housing market despite its struggles. But he also said he was concerned that more reform was needed to make government support for housing finance more transparent in order to avoid the sort of "heady" real estate boom that sparked the 2008 crisis.

(Reporting By Howard Schneider; Editing by Andrea Ricci)

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Comments (2)
TheNewWorld wrote:
Each interest point will add $200 – $300 billion to the US budget in interest payments each year. Things are going to get bad soon as the liberals and so called fiscal conservatives learn what the consequences of deficit spending truly are.

May 20, 2014 2:53pm EDT  --  Report as abuse
morbas wrote:
None of this would be necesary IFF the people demand…
Tax is not just on Income,
Disposable income is required to spur the economy. However the city-county municipality are short the revenue, thus tending to increase low income burden. Property and fee based revenue are the only constitutionally available revenues and the fixed-low income people know it. This revenue base unfairly burdens sustenance side economics. This is favored by the Tea-GOP because they are funded by the 1%, while the DNC is supported by the 99% economics. North Carolina represents a precursor if Tea-GOP is allowed control of the Federal Government. North Carolina H998 Tax unburdens the top 1% by 35% income tax reduction, paid for by education furloughs and education voucher shell game unfavorable to the 99%. The North Carolina Tea-GOP copied out of state ALEC dictation into law then took a year leave attempting to avoid NAACP Clergy and constituent majority.
USA tax structure is the fault and an obstacle to worldly potential. Transaction tax code imposes disproportionate burden at the most fundamental rights of liberty, justice. Any encumbrance on sustenance is contrary to equality in the ’pursuit of happiness’. Debt and deficit is simply insufficient revenue. We can nationalize the tax code eliminating all other taxation, immediately balancing the budget(s), through a margin graduated income tax principle.

To: Office of Senator ____________________
United States Senate Washington,
D.C. 20510
To: Office of Representative_________________________
U.S. House of Representatives
Washington, DC 20515
We the people of this United States do proclaim this federal government ‘of, by and for the people’. That, in order to fairly distribute revenue burden, to satisfy ‘net income’ progressive taxation, to balance all governments budgets, and to not tax poverty;
The people mandate:
Income National Tax code that shall use margin graduated income tax principle: Margin $30k 0% single, $60K 0% joint, income above this a linear increasing rate {Income-[$30k or $60k])*(Income/$800k)*90%; 90% limit} . Exemptions shall be prohibited. The Federal Reserve shall amend the (90%) rate, and control currency printing mandated to maintaining currency availability and value. The Federal Reserve shall set the Margin rate value well (>2x) above highest of all State Poverty Level(s). Revenue shall be proportioned 1/3rd Federal,1/3rd State proportioned per cast ballot and 1/3rd Local proportioned per cast ballot.
This National Tax is a peoples tax, no other citizen taxation shall be permitted. Business shall not be taxed. The Federal Reserve shall control taxation. The people will by simple majority approve or reject all margin and rate changes at every Congressional House Representative election year ballot.

* This elimnates taxing subsistence wage.
* This makes taxes truely progressive.
* This eliminates ALL TAXES except income.
* This Enables Single Payer Health Care.
* This is a single simple progressive tax.
* This Reduces net tax burden on the 99%
* This Eliminates Payroll taxes.
* This prohibits wealth disparity.


May 20, 2014 6:01pm EDT  --  Report as abuse
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