4 Fed officials hint an interest-rate boost could be ahead

Posted: April 02, 2011

In an unusual public display of the thinking within the Federal Reserve, four Fed officials Friday raised red flags about the danger of rising prices and hinted that the nation's central bank may soon have to counter them by boosting interest rates.

Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia, said an increase in economic growth or inflation could require the Fed to begin withdrawing its record monetary stimulus and possibly raise its main interest rate by the end of this year.

Cotton prices, for example, have risen nearly 20 percent this year, corn has doubled in price since last summer, crude oil is up about $22 a barrel since late January, and gasoline in the Philadelphia area has increased an average of 37 cents a gallon in the same period.

"Signs that inflation expectations are beginning to rise or that growth rates are accelerating significantly would suggest that it is time to begin taking our foot off the accelerator and start heading for the exit ramp," Plosser said in a speech in Harrisburg.

In separate appearances Friday, concerns also were raised by Federal Reserve Bank of Dallas president Richard W. Fisher, Federal Reserve Bank of Richmond president Jeffrey Lacker, and Federal Reserve Bank of Kansas City president Thomas Hoenig.

As Fed Chairman Ben S. Bernanke and the Federal Open Market Committee near the completion of a $600 billion bond-buying program meant to spur the economy, some central bankers are focusing on the strategy and timing for shrinking the Fed's record $2.63 trillion balance sheet and eventually raising interest rates above the zero-to-0.25 percent range that has been in place since December 2008. The committee sets the Fed's policy on interest rates.

"We should not be too sanguine in believing that such a time is a long way off or that the process will only be gradual," Plosser said.

Fisher said the Fed was moving closer to a period where reversing its accommodative policies "makes a lot more sense." He said the economy now was "self-sustaining."

comments powered by Disqus
|
|
|
|
|