Plosser: Rates to Rise Before Job Market Heals

The fed funds target rate will have to go up “well before” the labor market fully recovers, Federal Reserve Bank of Philadelphia president Charles I. Plosser said Friday.

Plosser called on the Fed to sell the agency mortgage-backed securities it holds as part of an exit strategy.

“As the economic recovery strengthens, the [Federal Open Market Committee] will need to withdraw monetary stimulus,” he said.

“As in past cycles, the decision about when to begin raising the federal funds rate is conditional on the evolution of the outlook for economic growth and inflation,” Plosser told the Delaware State Chamber of Commerce.

“Given the lags in the effects of monetary policy on the economy, we will need to begin withdrawing stimulus well before the unemployment rate gets down to its long-run level. Our intent will be, as it always is, to set monetary policy consistent with achieving our long-run goals of price stability and maximum sustainable economic growth.”

The Fed, he said, is working on its exit strategy.

“We are carefully considering all aspects of our strategy for exiting this period of extraordinary policy accommodation as we monitor the evolution of the economic outlook,” Plosser said.

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