While members of the Federal Reserve continue to deliberate the timing of interest rate hikes behind closed doors, two members particular are increasingly making their views on this subject public. These two members are Charles Plosser, the outgoing President of the Federal Reserve Bank of Philadelphia, and Charles Evans, the President of the Federal Reserve Bank of Chicago. And although both members are looking at the same data, their views on interest rates differ markedly. In today’s article we will focus on Charles Plosser’s views on interest rate hikes, and in a later article we will discuss those of Mr. Evans.
Although Mr. Plosser is slated to retire next March, he is still a well-respected member of the Federal Reserve, and his opinions continue to carry weight with other officials at the central bank. While the Fed continues to debate the timing and pace of future interest rate increases, the consensus opinion among analysts is that they will be raised sometime next year. Before this happens, and the cost of borrowing increases across the board, senior housing participants who are seeking capital for acquisitions, sale/leasebacks, joint ventures, or other purposes should contact Cambridge Realty Capital to learn more about the many different financing options it offers for these and other purposes as well.
A Fed Hawk Argues for Interest Rate Hikes
At a speech that he recently gave in Allentown, Pennsylvania, Mr. Plosser stated that he would like to see the Federal Reserve raise interest rates “sooner rather than later” because the labor market improved in recent months and inflation remains low. The unemployment rate is 5.9 percent, a level that the Federal Reserve did not expect to see until sometime during the second half of next year. Inflation is also below the Fed’s two-percent target rate. In addition to these factors, Mr. Plosser also expects the country’s gross domestic product (GDP) to grow by three-percent during the second half of 2014 and throughout 2015. Sustained GDP growth should lead to more job creation and lower unemployment, and these are some of the reasons why Mr. Plosser believes that the Fed should raise interest rates sooner instead of later. Mr. Plosser also thinks that if the Fed waits until it is 100 percent sure that the labor market and economy fully recover from the recession, then it will have waited too long and high rates of inflation will occur because of this. Accordingly, he believes that the Fed should raise interest rates in anticipation of a full recovery instead of waiting until that happens.
Lastly, Mr. Plosser believes that the Federal Reserve should update its guidance on interest rates so that, if it does decide to increase rates sooner instead of later, economic actors are on notice of this and can plan accordingly. As most Fed watchers would attest to, Mr. Plosser clearly holds strong views on interest rate hikes and, although they are shared by a few other members at the Fed, other members like Charles Evans have a different take on interest rates.