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Warsh Says Fed May Raise Rates With ‘Greater Force’ (Update1)
By Craig Torres and Vivien Lou Chen
Sept. 25 (Bloomberg) -- Federal Reserve Governor Kevin Warsh said the U.S. central bank may need to raise interest rates with “greater force” than it has in the past to keep inflation in check.
“Prudent risk management suggests that policy will likely need to begin normalization before it is obvious that it is necessary, possibly with greater force than is customary,” Warsh said in remarks prepared for the Chicago Fed-World Bank international banking conference. His remarks were similar to an opinion piece published late yesterday on the Wall Street Journal’s Web site.
Warsh, who is 39 and was one of Chairman Ben S. Bernanke’s top advisers during the financial crisis, said policy makers face both upside and downside risks to growth, and that means policy decisions have to be flexible and “steer clear” of “ironclad” prescriptions. Two days ago, the Fed unanimously decided to keep its benchmark rate near zero and repeated that rates will stay low for an “extended period.”
“The uncertainty of the capital and labor reallocation process, a global trade environment in transition, and a shifting regulatory environment represent downside risks,” Warsh said. “The possibility that we fail to accurately gauge the resulting changes in economic and inflation prospects,” he added, “is a foremost risk for policy makers.”