CRISISBOOM

Vicki Needham

Unemployment will remain high, the nation’s economy could expand by 4 percent and interest rates may need go up, Federal Reserve Bank of Philadelphia President Charles Plosser said Monday.

“If economic growth in the United States continues to gain traction and the prospects begin to look ever better, it might be time for us to begin thinking about how do we begin to gradually take our foot off the accelerator,” Plosser told reporters after a speech at the Central Bank of Chile in Santiago, according to news reports.

Plosser said he may favor a rate increase if economic growth necessitates a change.

“It might. I’m not going to rule that out,” he said.

The central bank has said that it plans to keep short-term interest rates low for an “extended period.”

During Monday’s speech, Plosser also predicted that the U.S. could grow between 3 percent and 4 percent this year.

The Fed’s plan to purchase $600 billion in government debt will probably continue through June while the nation’s 15 million unemployed look for work, although Plosser didn’t rule out pulling the stimulus funds back earlier.

“It could end earlier if economic conditions call for it, but right now I’m not sure that that’s the most likely outcome,” he told reporters. “It obviously creates challenges for some countries because of appreciating currencies. But I think that will pass. Those are short-run issues.”

Plosser has expressed concern about whether the Fed’s quantitative easing, also known as QE2, will spur economic growth while lowering the jobless rate that has remained above 9 percent for 20 months.

“Monetary policy is not going to be able to speed up the adjustments in labor markets or prevent asset bubbles, and attempts to do so may create more instability, not less,” he said.

“Expecting too much of monetary policy will undermine its ability to achieve the one thing that it is well-designed to do — ensuring long-term price stability.”

QE2 has brought harsh criticism from some lawmakers on Capitol Hill who argue that the plan could devalue the dollar and cause inflation.