The president of the Federal Reserve Bank of Philadelphia says that the ongoing housing slump is no reason not to raise interest rates.
The Fed will likely have to boost interest rates "sooner, rather than later," even if the housing mess persists, Charles Plosser tells Bloomberg News.
In June, the Fed ended a nearly yearlong streak of rate reductions aimed at bolstering the economy due to concerns over inflation. The central bank left the key rate at 2 percent.
Many economic gurus predict Fed policymakers will leave rates alone again when they meet next on Aug. 5.
Inflation is a growing concern, however, and that could change the perceptions of Fed members, Plosser says.
"Inflation is already too high and inconsistent with our goal of — and responsibility to ensure — price stability," Plosser says.
"We will need to reverse course — the exact timing depends on how the economy evolves, but I anticipate the reversal will need to be started sooner rather than later.
"And, I believe it will likely need to begin before either the labor market or the financial markets have completely turned around."
Wholesale prices are rising for food, and that raises the risk of inflation spreading throughout the economy. As investors prepare for this, they may start to behave in ways that can actually aggravate inflation, Plosser says.
"Households, workers, businesses, investors, financial firms all must have confidence that the Federal Reserve will not let inflation get out of control," Plosser says.
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