Fed's Plosser Cites Inflation Concerns

Federal Reserve Bank of Philadelphia President Charles Plosser in a speech early Tuesday rose the specter of inflation, a move sure to roil financial markets expecting the central bank to cut its target rate at its next meeting later this month.

In a speech to the Main Line Chamber of Commerce Economic Forecast Breakfast in Philadelphia, Plosser, a voting member of the Fed's rate-setting Open Markets Committee, said he expected "several quarters of sluggish growth" in 2008, before the economy begins to grow again. But he also raised concern that recent data suggested inflation was becoming more broad-based, making the central bank's policy decisions more "difficult."

"We must remain vigilant on the inflation front and be prepared to act as necessary to avoid the risk of undermining public confidence in the central bank's commitment to price stability," Plosser said, according to his prepared remarks.

As the market has experienced a sluggish start to 2008, Wall Street increasingly has expected at least a 25 basis point cut to the federal funds rate. Plosser's suggestion that inflation remains a concern on the Open Market Committee, which has cut the federal funds rate a full point over three consecutive meetings, likely will not sit well with traders.

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