Breaking news : Fed Must Raise Rates as Economy Improves

Breaking news : Fed Must Raise Rates as Economy Improves

Fed’s Plosser, who will be a voter on the Fed’s policy-setting panel, repeated his view that the Fed should raise its target federal funds rate before the jobless rate — currently at 10 percent — has returned to “acceptable levels.”

“I believe the Fed will need to withdraw the extraordinary amount of liquidity it has provided to the economy and begin to raise interest rates as the economy continues to improve and financial markets return to more normal operation,” he said.

NEW YORK (Reuters) – The U.S. Federal Reserve will have to raise interest rates as the economy improves or risk losing the public’s confidence in its commitment to keeping inflation low and stable, a top Federal Reserve policy maker said on Tuesday.

Charles Plosser, president of the Philadelphia Federal Reserve Bank, said expectations for future inflation are currently “well-anchored,” but warned that there is “considerable uncertainty” clouding the outlook for price pressures over the next two to five years.

Plosser, known as an anti-inflation “hawk,” reiterated that Fed policy must be preemptive, in remarks prepared for delivery to the Entrepreneurs Forum of Greater Philadelphia.

As monetary policy works with a lag, officials need to consider what the inflation outlook will be and how the economy will look in 2011 and beyond, he said.

Plosser said the Fed should end the MBS purchase program by the end of March as planned.

“I believe it is important that we do so, and reduce our participation in this market, so the private market can once again resume a significant role. It cannot do so as long as the Fed is the dominant player,” he said.

If the Fed’s purchases were to continue it would “risk delaying the return to normal market functioning,” he said.
 

 

update via Yahoo! finance

 

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