NEW YORK (TheStreet) -- As the Federal Reserve considers a possible hike in interest rates next month, former regional Fed President Charles Plosser said "normalizing" rates -- meaning, raising them -- after years at zero will be difficult.

"We're in unchartered territory. This is something we've never done before, and central banks rarely have done," said Plosser, who served as the president of the Federal Reserve Bank of Philadelphia for eight and a half years before retiring this past March. 

"I think there's going to be some learning along the way and we're going to have to see what techniques or strategies work most effectively. But it's going to be a challenge," said Plosser. "We'll have to see whether the Fed can manage its way out of this in a manner of its own choosing, or whether it's stuck reacting to market pressures that are going to dictate to the Fed how it has to proceed. 

"Some people are worried that the market may get ahead of the Fed, and the Fed will have no choice, for example, to raise rates very aggressively or very quickly.  They may not choose to do that, but they may have to."

Plosser made his comments at Camp Kotok, a gathering of economists, money managers and others from the financial industry held each year in Maine. 

Plosser was asked about the likelihood of a September rate hike, and what FOMC members are considering ahead of their decision.

"I think there's a lot of concern in the committee about the consequences of such a prolonged period of zero interest rates," said Plosser. "There's a lot of people who would like to see us get away from zero, just as a matter of principle, and I think that's not a bad idea. The longer it goes on, I think the more uncomfortable some people become."

Plosser said there are several different factors FOMC members are considering. "Some people are looking for more inflation, or more assurances that inflation is going to move back to 2%, other people want to see the unemployment rate go lower or labor markets improve," explained Plosser. "But on the other side there are going to be others who are very concerned about financial stability and they are going to worry about the potential unintended consequences."

Plosser said that would include asset bubbles and distortions in the market.  He also said the financial markets should put less emphasis on the Fed's ability to control the economy.

"I think financial markets should get away from this notion that everything the Fed does is so important," said Plosser. "Lots of things go on to determine the path of the economy that have nothing to do with the Fed. We need to get used to that."

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