The Federal Reserve's inflation-fighting "credibility" will be in doubt if it fails to raise interest rates as the economy grows, said Charles Plosser, president of the Federal Reserve Bank of Philadelphia. He said it might even be appropriate to increase interest rates "before unemployment or other measures of resource slack have diminished to acceptable levels." Otherwise, the central bank would be injecting liquidity at a rate that would create inflation "above desirable" levels. "If this were to happen, the Fed would lose its credibility to preserve low and stable inflation," Plosser said.
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