The Federal Open Market Committee may need to raise rates before 2014, Federal Reserve Bank of Philadelphia president and chief executive officer Charles I. Plosser said Thursday.
Additional accommodation now “could lead us down a very treacherous path — one that would be ever more difficult for us to navigate and one that would increase the already-substantial risk of higher inflation,” Plosser told the Rotary Club of Wilmington, Del., according to prepared text of his remarks released by the Fed. “Prolonged efforts to hold interest rates near zero can lead to financial market distortions and the misallocation of resources that could lead to more, not less, economic instability.”
“We should resist any notion that we can solve all of our economic challenges simply by an ever more accommodative monetary policy,” he added.
While “accommodation is still called for,” Plosser said, it should not “be as accommodative or aggressive as it was at the height of the crisis,” since unemployment levels have dropped and inflation has risen since then.
“We should not anticipate additional accommodation. Indeed, in the absence of some shock that derails the recovery, we may well need to raise rates before the end of 2014,” he said.