Interest rates should go up: Fed official

Interest rates, now at historic lows, should be raised, says Philadelphia Fed president. He argues the central bank should push up interest rates in 'the not-too-distant future.'

Brendan McDermid/Reuters
Philadelphia Federal Reserve President Charles Plosser speaks at an Economics21 event in New York March 25, 2011. Mr. Plosser said the Fed should raise interest rates in the 'not-to-distant future.'

The U.S. dollar was stronger against most other currencies after a Federal Reserve official raised the prospects for higher interest rates.

Philadelphia Fed President Charles Plosser said during a speech Friday that the central bank needed to change policies and raise interest rates in "the not-too-distant future."

Central banks raise interest rates to help counter inflation, and higher rates on government bonds tend to increase demand for the currency linked to that country or region.

Plosser is known for his hawkish comments, but with light trading on Friday and not much other news, the dollar is moving higher on the speech, said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.

RELATED: 2011 forecasts for interest rates around the world

The euro, used by 17 European countries, has been climbing this year on expectations that the European Central Bank will lift interest rates as soon as April, ahead of any plans by the Federal Reserve to do the same.

But the European debt crisis is weighing more heavily on the euro this week. Portugal is facing political uncertainty and expectations are growing that it will seek a heavy bailout like Greece and Ireland did last year. Such a move would be the latest sign for investors that Europe's debt problems might not be easily resolved.

Portugal's minority government fell Wednesday after its Parliament voted down austerity measures that would have helped it cut government debt.

The euro fell to $1.4073 during late trading Friday, from $1.4183 late Thursday. The British pound fell to $1.6019 from $1.6111.

The U.S. dollar rose to 81.41 Japanese yen from 80.95 yen late Thursday. Japan's nuclear situation remains a concern as a suspected breach in the reactor at the stricken Fukushima plant raised fears of more serious radioactive contamination.

There was also slightly better news for the U.S. economy. The government said Friday the economy grew a little faster at the end of 2010 than what was previously estimated. The economy, measured by the gross domestic product, grew at an annual rate of 3.1 percent in the October-December quarter, higher than last month's estimate of 2.8 percent for the same period.

In other trading late Friday, the U.S. dollar rose to 0.9195 Swiss franc from 0.9073 Swiss franc, and rose to 98.12 Canadian cents from 97.65 late Thursday.

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