Federal Reserve Bank of Philadelphia President Charles Plosser and Richmond Federal Reserve President Jeffrey Lacker said Friday the central bank might raise interest rates before the end of the year in response to a growing economy and rising inflation.

“It wouldn’t surprise me if we need to act before the end of the year,” Lacker said today in a CNBC television interview. “Inflation is the bigger risk this year. That is what you have to keep your eye on.”

Meanwhile, Plosser said an increase in growth or inflation could require the Fed to begin withdrawing record monetary stimulus and possibly raise its main interest rate by the end of this year.

“Signs that inflation expectations are beginning to rise or that growth rates are accelerating significantly would suggest that it is time to begin taking our foot off the accelerator and start heading for the exit ramp,” Plosser said today in a speech in Harrisburg, Pa.

“It’s certainly a possibility” that the Fed will need to raise rates before the end of 2011, Plosser told reporters after the speech. “In my mind it’s definitely on the table but it will depend on how things play out over the next few months.”

As Fed Chairman Ben S. Bernanke and the Federal Open Market Committee near the completion of a $600 billion bond buying program, some central bankers are focusing on the strategy and timing for shrinking the Fed’s record $2.63 trillion balance sheet and eventually raising interest rates above the zero to 0.25 percent range that has been in place since December 2008.

“We should not be too sanguine in believing that such a time is a long way off or that the process will only be gradual,” he said. “A stronger rebound in the economy or inflation than some now expect could require policy actions to be taken sooner and more aggressively than many observers seem to be anticipating.”

At the FOMC’s last meeting on March 15, Plosser, 62, joined the rest of the committee in unanimously reaffirming plans to buy Treasurys while saying the recovery is gaining strength and that the effects of higher energy prices will be “transitory.”

Second Round of Easing

The Fed is scheduled to complete its $600 billion of Treasury purchases in June under the second round of so-called quantitative easing. Central bank officials have given little indication what they will do after that. In speeches and testimony over the past two years, Bernanke has listed the Fed’s tools for tightening credit, including raising rates, draining reserves and selling assets, without committing to the timing, sequence or pace of the stimulus withdrawal.

“The committee reassessing the stance is the appropriate thing to do,” Plosser said when asked if he would consider stopping the Fed’s bond buying short of $600 billion. “I am willing to reevaluate it, but I am going to wait for the meeting before making a decision,” he said.

Plosser said “I’m more nervous now than I was a few months ago” about the path of inflation and inflation expectations. “Expectations of inflation are going to be critical to how I asses the stance of where we are,” he said.

‘Behind the Curve’

“Allowing monetary policy to fall behind the curve can only result in greater inflation and more economic instability in the future,” Plosser said to the Harrisburg Regional Chamber, a group of business leaders in the Pennsylvania state capital.

Answering an audience question on inflation, Plosser said, “I would like to see those price levels stop rising quite so fast but they still might be high.”

“If monetary policy permits it, they will keep rising along with everything else,” he said.

In a speech last week in New York, Plosser outlined his own strategy for the central bank’s return to normal monetary policy. The Fed should set a pace for selling its mortgage and Treasury holdings in conjunction with raising interest rates, he said. Plosser suggested selling $125 billion for every 0.25 percentage-point rise in the benchmark rate to almost eliminate $1.5 trillion in bank reserves.

‘Having a Plan’

“Important for us to think in terms of having a plan,” Plosser said. “That’s where I’d like to see a discussion. The markets would welcome it and the public would welcome it.”

The cost of living in the U.S. climbed more than forecast in February, led by the highest food prices since 2008 and rising fuel costs. The consumer-price index increased 0.5 percent, the most since June 2009, figures from the Labor Department showed last month.

“As the recovery continues to pick up steam and firms become more convinced that increases in demand will be sustained, they will feel more confident that they can pass through price increases and have them stick,” Plosser said, adding he expects inflation of about 2 percent over the next year and annual growth of about 3.5 percent over the next two years.

Economy Grew

The consumer price index increased 2.1 percent in February from a year earlier, the Labor Department said. The economy grew 3.1 percent in the fourth quarter of 2010, according to the Commerce Department.

“It is imperative that we have the fortitude to exit as aggressively as necessary to prevent a spike in inflation and its undesirable consequences down the road,” he said.

Plosser spoke before the Labor Department’s report today that the U.S. economy added more jobs than forecast in March and the unemployment rate unexpectedly declined to a two-year low of 8.8 percent, a sign the labor-market recovery is gathering speed.

“Prospects in labor markets have improved in recent months,” Plosser said, predicting unemployment will fall to between 7 percent and 8 percent by the end of 2012.