| WASHINGTON, June 24
WASHINGTON, June 24 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 added that inflation was trending higher and
unemployment likely to fall faster than many of his central bank
"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.
Plosser's comments reflect a widening spread of views among
Fed officials about when and how fast interest rates should
increase from the near zero level where they have been since the
start of the financial crisis.
At the Fed's most recent policy meeting, the median interest
rate projection among Fed officials moved somewhat higher,
although there were also more members clustered around a slower
pace for rate rises. That division could set the stage for a
pivotal debate over how long to wait before increasing interest
rates in the hope that employment and wages recover some of the
ground lost in the recent downturn.
As the economy strengthens, the need for the Fed to explain
its strategy on rates will be even more crucial in order to keep
expectations about inflation under control, Plosser said.
He urged the Fed to move towards a more rule-based system to
reduce confusion among investors and the public over the
direction of policy. He noted that several commonly used
monetary policy rules indicate rates should rise soon and his
Fed colleagues should have to explain more clearly why they plan
to keep the loose policy in place so much longer.
"Policymakers should describe the reaction function that
determines how the current and future policy rate should be
set," Plosser said.
If officials deviate from that because of a crisis, they
"will be expected to explain the departures from the rule in
these unusual circumstances. With a rule as a baseline,
departures can be quantified and inform us how excessively tight
or easy policy might be relative to normal."
(Reporting by Howard Schneider; Editing by Andre Grenon and