Charles Plosser, president of the Philadelphia Federal Reserve Bank, is now on record saying that the Federal Reserve should raise interest rates before there is any meaningful recovery in employment:

Federal Reserve policy makers must raise the benchmark interest rate “well before” unemployment falls to an acceptable level in order to keep inflation in check, Fed Bank of Philadelphia President Charles Plosser said.

Plosser forecast the economy will expand 3 percent to 3.5 percent this year and next, faster than the 2.75 percent that he sees as the underlying potential pace. As growth pushes up market interest rates, the Fed’s target for overnight lending among banks should also rise “as long as inflation is near its desired level and inflation expectations are well-anchored,” he said today in a speech in Philadelphia.

I would note that Ben Bernanke has made statements in the same vein: that notwithstanding the charge to the central bank to both control inflation and maintain full employment, the second part means nothing.

Note that Plosser is not a regular voting member of the Federal Open Market Committee (FOMC), though he will get his turn to vote next year.

I lay a lot of this at the feet of Paul Volker (I bet you expected me to say, “Alan ‘Bubbles’ Greenspan”) because he is the modern standard carrier for a Fed chairman: He created the worst recession in 40 years in 1979-81 in order to wring inflation out of the economy.

He was probably right then, though I think that a lot of the inflation was caused by increases in commodity (oil) prices, but now we have Federal Reserve staff who see this, and want to repeat the disastrous tightening of money that caused the 1937 recession.

This is non-sensical, and this, along with the Fed’s repeated role as protector of large investment firms (that one is Alan ‘Bubbles’ Greenspan’s fault) are why reform, and significant turnover, in the management of the Federal Reserve is essential.