Fed's Plosser: Rates may need to rise earlier if growth picks up

May 20, 2014

Washington (May 20)   The U.S. economy is likely to grow at an accelerating pace in the second half of 2014 and into next year, possibly requiring the Federal Reserve to "begin raising interest rates sooner rather than later," said Charles Plosser, president of the Philadelphia Fed. In a speech Tuesday in Washington, Plosser reaffirmed his view that the economy will continue to strengthen over the next year. He said a more rapid pace of hiring might lower the unemployment rate, now at 6.3%, below 6% by the end of 2014. He also said he's optimistic the housing market will bounce back after a recent drop in sales. If these forecasts are correct, the Fed could wind down its bond-buying program by the fall and raise interest rates earlier than Wall Street expects. Still, Plosser said he expects "monetary policy will still be highly accommodative" even after bond purchases are ended. Looking further ahead, Plosser warned that central banks may have become too "interventonist" and that they need to restore "some semblance of normalty to monetary policy." A similar approach needs to be adopted for a housing market that is more heavily subsidized in the U.S. than any other developed country. Plosser, who spoke at the Women in Housing and Finance assocation, is a voting member of the Fed's policy-making committee this year.

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