The US Federal Reserve may have to raise short-term interest rates faster than expected as it winds down its economic stimulus policy, a Fed official said.
While not saying the Fed was close to having to to raise rates from their current rock-bottom levels, Federal Reserve Bank of Philadelphia President Charles Plosser Friday expressed concern that the central bank will face many uncertainties about how that process will move forward, the Wall Street Journal reported.
Plosser has been a skeptic of the Fed's bond-buying stimulus effort, known as quantitative easing, and has expressed discomfort with the duration of the extremely low short-term rates, the Journal said.
Plosser spoke as a member of a panel discussion at the annual American Economic Association in Philadelphia. His comments follow the Federal Open Market Committee's decision in December to slow the pace of what had been an $85 billion a month bond-buying program, the Journal said. After the decision, monthly purchases will stand at $75 billion; observers expect a slow-but-steady reduction in the pace of buying as 2014 progresses.
Plosser said he was uneasy with the expectation that the Fed would keep short-term rates very low until some point in 2015. He warned that the central bank should prepare for a faster and more aggressive rate-hike campaign.
Plosser said the Fed would like to raise rates "gradually," noting "it doesn't always work that way."
"How fast will we have to move interest rates up ... we don't know the answer to that," Plosser said.