Philadelphia Federal Reserve president Charles Plosser on Wednesday dismissed concerns of a strong U.S. dollar, saying monetary policy creates consequences and can distort asset prices but the Fed must focus on its mandate.
Plosser said exchange rate movements have historically not tended to affect U.S. inflation, which along with unemployment is the Fed's "true mandate".
"The Federal Reserve does not have a foreign exchange goal. I don't see it (a strong dollar) as a significant risk at this point," Plosser said, speaking at the UBS European Conference in London.
Turning to interest rates, Plosser, who is due to step down next March, said rates should start rising in the "not too distant future" as the U.S. economy is "way ahead" of where the Fed projected it would be.
"I would prefer that we start to raise rates sooner rather than later. This may allow us to increase rates more gradually as the data improve rather than face the prospect of a more abrupt increase in rates to catch up with market forces," he said.
Plosser, known as a hawk, said inflation which is about 1.5 percent now is rising towards the Fed's 2 percent target. U.S. unemployment, at 5.8 percent is falling faster than many policymakers anticipated.
Maintaining ultra-low interest rates could"pose risks to the economy in the years ahead, including possible higher inflation and financial instability," he added.
Plosser is in the minority of Fed officials who want to hike rates before mid-2015, when many of his colleagues as well as investors expect the move to come.
Plosser on Oct. 29 backed the decision of the Federal Open Market Committee, despite a reference to rates staying low for a "considerable time." His support, he said, was due to an addition that made clear a tightening could come sooner if the economy pans out better than expected, and later if the economy is worse.