Interest rate hikes will come “sooner rather than later” according to Federal Reserve Bank of Philadelphia president Charles I. Plosser.

“Keeping policy too accommodative for too long worsens our inflation problem,” Plosser said at a Philadelphia Business Journal breakfast yesterday, according to prepared text of the speech, released by the Fed. “Inflation is already too high and inconsistent with our goal of — and responsibility to ensure — price stability. We will need to reverse course — the exact timing depends on how the economy evolves, but I anticipate the reversal will need to be started sooner rather than later. And I believe it will likely need to begin before either the labor market or the financial markets have completely turned around.”

Sluggish growth and weak labor markets will persist in 2008, with gross domestic product near 1.7%, Plosser predicted, noting that this was an optimistic view. He said the recent failure of IndyMac and the problems of Fannie Mae and Freddie Mac “demonstrate, the road to recovery is likely to be a bumpy one.”

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