Fed May Hike Interest Rates Sooner than Expected, Says Philadelphia’s Banker

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Fed May Hike Interest Rates Sooner than Expected, Says Philadelphia’s BankerThe buoyant U.S. economy may soon prompt the Federal Reserve to raise interest rates earlier than expected, said Philadelphia Federal Reserve chief Charles Plosser.

Plosser, in his speech on Tuesday in Washington, said the Fed may fail to control inflation if it retains its current loose monetary policy despite improvement in the economy and the labor market, reported Reuters. He forecasts the economy to expand by 3 percent in 2014, despite the sluggish first-quarter growth.

In a prepared speech ahead of his address in a housing conference, Plosser, who is a key member of the Fed’s policy committee, said the economy is on the strongest footing since the economic recovery started.

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“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. “That may well require us to begin raising interest rates sooner rather than later.”

The Fed is currently reducing its monthly bond purchases and is expected to wind down the program completely this fall. Interest rates in U.S. have remained close to zero in the past five years, while the Fed has purchased $1.4 trillion worth of assets via its stimulus program.

Plosser also expressed optimism about the housing sector, though he expressed concern that more measures should be put in place to prevent a repeat of the 2008 financial crisis. He also said that he is worried of the fact that the U.S. central bank and the regional central banks have gotten used to the “highly interventionist” role that they played to combat the aftermath of the 2008 financial collapse. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com