The Federal Reserve should consider winding down its monthly bond-purchasing program quicker than its current pace to ensure than inflationary pressures remain in comfort zones, Charles Plosser, the head of the Federal Reserve's Bank of Philadelphia, said Tuesday.
The Federal Reserve has said that rate hikes won't come for a considerable time period after the Fed's bond-purchasing program ends, but monetary authorities may want to pay close attention to that time frame, Plosser added.
The Fed is currently purchasing $45 billion in Treasury and mortgage debt a month to spur recovery by suppressing long-term interest rates.
That figure is down from the original $85 billion in monthly bond purchases begun in 2012, as a stronger economy has prompted the Fed to taper the program.
Should the U.S. economy improve as forecast, monetary authorities should taper the program quickly as inflation rates approach Fed target levels, Plosser said, adding once the program winds down, rate hikes should follow close behind.
"My own view is that, as we continue to move closer to our 2 percent inflation goal and the labor market improves, we must be prepared to adjust policy appropriately. That may well require us to begin raising interest rates sooner rather than later," Plosser said in prepared remarks of a speech he delivered in Washington earlier.
"On monetary policy, reducing the pace of asset purchases in measured steps is moving in the right direction, but the pace may leave us behind the curve if the economy continues to play out according to FOMC forecasts."
The economy is improving and will continue to need less monetary support going forward, though don't expect a boom in the housing sector.
"I believe that the U.S. economy is continuing to improve at a moderate pace. We are likely to see growth return to around 3 percent through the rest of 2014. Prospects for labor markets will continue to improve, and I expect the unemployment rate will continue to decline, reaching 6.2 percent or lower by the end of 2014," Plosser said.
"I also believe that inflation expectations will be relatively stable and that inflation will move up toward our goal of 2 percent over the next year. I expect the housing and construction sectors will continue to recover. But we should not seek to return to the heady days of last decade's real estate boom."