Fed's Plosser Calls Inflation Threat "Serious" and "An Insidious Tax on Consumers"

Speaking in an interview with CNBC, Philadelphia Fed President Charles Plosser said the inflation threat was "serious", and called it an "insidious tax on consumers".

Inflation has spread to more than just food and oil, said Plosser, and the Fed is in a unique position to address those issues. The policymaker also warned that the Fed had to be careful that the current "accommodative" monetary policy stance does not sow the seeds of inflation down the road.

The FOMC will have to act preemptively to address these issues, he said.

Addressing the recent movements in energy markets, Plosser said that monetary policy could not directly affect the prices of food and oil, but interest rates were low by most standards, and will have to rise. Headline and core inflation, he said, were currently not consistent with price stability.

Turning towards the credit crunch, the Philadelphia Fed President warned that financial markets were not out of the woods yet, adding that, "We're going to see some ups and down and bumps along the way." Nevertheless, he noted that things appeared to have improved over the last couple of months.

On the U.S. dollar, Plosser said that monetary policy looked at foreign exchange only insofar as its contributions to inflation expectations, but he believed that the USD was reacting to the higher prices rather than causing them.

He also voiced his support for Fed Chairman Ben Bernanke's recent comments, saying that they were very clear.

By Erik Kevin Franco and edited by Cristina Markham