Further cementing his status as an inflation hawk, Philadelphia Federal Reserve President Charles Plosser indicated on Thursday that the Federal Reserve would have to raise interest rates in the near future in order to curtail surging prices.
"We need to take steps to ensure that inflation does not get out of control," Plosser said in an interview with the CNBC television network. "We need to act preemptively."
The Philly Fed President's comments mark the latest in a recent series of cautious comments about inflation from Federal Reserve officials.
"It is certainly clear that rates will have to rise. The question is when," Plosser said.
While other Fed officials have suggested that the recent surge in commodities prices isn't spreading, Plosser noted that "relative" price growth can quickly become widespread inflation if monetary policy is too loose.
"Inflation has been gradually been creeping up and more than just in oil and food," he said. "The base of inflation is broadening."
Plosser suggested that the Fed needs to avoid the mistakes of the 1970's, when he feels the Fed acted too late and allowed a relative price shock in oil to translate into higher inflation.
"We have to be careful that in our accommodative policies and our efforts to support our economy, we don't make the mistake of creating inflation pressures," he said.
Earlier this week, Federal Reserve Chairman Ben Bernanke also made comments indicating that the Fed might raise rates sooner than anticipated in order to counteract rising inflation.
Addressing a Fed conference in Massachusetts, Bernanke said soaring commodities prices threaten to heighten U.S. inflation, hinting that the Fed would step in to keep inflation in check.
Bernanke said, "The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation."
The Federal Open Market Committee, the policy-setting arm of the Federal Reserve, is scheduled to make its next decision on interest rates following a two-day meeting ending June 25th. The committee is widely expected to leave rates unchanged following a series of rate cuts.
The committee has lowered its target for the federal funds rate by 325 basis points since September, reducing the rate from 5.25 percent to its current level of 2 percent.
Plosser and Dallas Fed President Richard Fisher voted against the past two rate cuts, preferring no change in the target for the federal funds rate at the latest meeting in April. Fisher alone voted against the rate cut in January.
by RTTNews Staff Writer
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