Philly Fed boss sees tough times ahead

Policymakers at the Federal Reserve will face "an interesting and challenging year," as it deals with negative economic news and inflationary pressures, said Philadelphia Federal Reserve President Charles Plosser. In a speech delivered at the Main Line Chamber of Commerce Economic Forecast Breakfast in Gladwyne, Pa. today, Mr. Plosser said that the U.S. economy faces higher inflation and the Fed must remain "vigilant" and "be prepared to act as necessary." Mr. Plosser said he expects that the U.S. economy to experience "several quarters of sluggish growth in 2008 before returning to a sustained expansion over the next two years." As for the struggling housing market, Mr. Plosser said that he expected for housing activity to bottom out in the latter part of the year and doesn't expect significant improvement in the housing sector to become apparent until 2009. Mr. Plosser also predicted slower job growth "for a time," which will send the unemployment rate "somewhat" above 5% during the course of the year. Despite all of his concerns, Mr. Plosser said that he expects that the economy will "improve appreciably" by the third and fourth quarters the year, and "that is when any monetary policy action today will begin to have noticeable effects."