The Federal Reserve must prepare investors for an earlier interest-rate rise than many now think, a hawkish U.S. central banker said in a speech on Thursday that did not specifically acknowledge the turmoil that has recently gripped financial markets.
Charles Plosser, head of the Philadelphia Fed, said rates may begin to rise "sooner than previously anticipated" and called on the central bank to promptly adjust its formal policy guidance to acknowledge "significant progress" in both U.S. inflation and employment.
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Plosser is among the minority of Fed officials who want to close the book on ultra easy monetary policy sooner than mid-2015, which is when most of his colleagues see a rate rise. Fears of a global economic downturn and a volatile selloff in stocks in recent days have, however, prompted investors to bet on a later tightening closer to the end of next year.
Plosser's prepared remarks to an economic development group did not address that.
The Fed must "prepare the markets for the fact that interest rates may begin to increase sooner than previously anticipated," said Plosser, who dissented on the central bank's last two policy decisions, and who will step down on March 1.
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"I'm not suggesting a rate increase now, but changing the forward guidance would at least afford us the flexibility to gradually raise rates beginning earlier than currently anticipated," he said, adding rates should rise in the "very near future".
The Fed has kept rates near zero since late 2008 and has bought trillions of dollars in bonds to spur recovery from recession. U.S. economic growth has been erratic but unemployment has fallen briskly to 5.9 percent last month.
Plosser repeated he expects about 3-percent GDP growth the rest of this year and next, before it settles to a trend around 2.4 percent.