The Federal Reserve could raise interest rates to as much as 5%, former San Francisco Fed boss Robert Parry said in Newport Beach on Wednesday.
By year’s end, high energy prices could prompt the Fed to up rates to 4.75% or 5%, Parry told a group of 200 businesspeople at the Fairmont Hotel.
The benchmark Federal Funds Rate now is at 4.25%.
Parry is more aggressive than others who predict the Fed will cap its 18 months of raising rates at 4.5%.
Rising energy prices still are a concern, despite 13 rate hikes since summer 2004, Parry said.
Worries about oil are growing with possible sanctions against Iran and political unrest in Nigeria.
Crude oil recently traded at nearly $67 a barrel, bringing back memories of rising gasoline prices this past fall when a barrel hit $70.
“If it persists, it’ll take a bit of the strength out of the economy,” said Parry, who retired in 2004 after an 18-year career with the Fed.
Parry was a member of the Fed committee that set interest rates. When he retired, the Fed had just started on its effort to tame inflation.
The central bank is expected to boost rates for a 14th time at its Jan. 31 meeting, the final session for Federal Reserve Chairman Alan Greenspan, who is stepping down after nearly 19 years.
Parry endorsed Fed Chairman appointee Ben S. Bernanke, who must still be approved by the Senate.
