Plosser Worries Fed will Resist Higher Rates for Too Long
Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said on Tuesday history is not on the side of the central bank when it comes to raising interest rates in a timely manner and the risk is financial markets will force its hand.
Plosser, speaking at the University of Delaware, said it is always easier to lower interest rates to spur economic activity than to raise interest rates, a mechanism to slow the pace of inflation.
"I am worried that we are going to be too late and that we are going to resist and resist raising rates and we are going to wait until it is so obvious we need to raise rates that we are going to be behind," Plosser told reporters.
"Financial markets aren't always patient and they could decide it is time to raise rates and long-term rates start rising and interest rates start going up and we are going to be forced to chase them up. Then we will be behind. I don't want to chase the market, but we may end up having to do that," he said.
Plosser reiterated the Fed has a problem communicating what it will do when economic data meets thresholds such as 2 percent for inflation and 6.5 percent for the unemployment rate. Inflation came in at 1.l percent last year and is likely to move higher, Plosser said. On Friday, the unemployment rate fell to a five year low of 6.6 percent.
"We never said what we are going to do after that point," Plosser said, referring to the employment data.