Raising interest rates by the end of 2011 should be on the table, depending on how the economy improves over the next few months, Philadelphia Federal Reserve Bank President Charles Plosser said on Friday.

In my mind it is definitely on the table, but it will depend in my view how things play out over the next few months, said Plosser, a voter on the Fed's policy-setting committee and an inflation hawk.

If inflation picks up and the economy continues to grow above trend, and inflation begins to pick up and expectations look like they're edging up, it will be appropriate in my view that we take appropriate policy responses to that, Plosser said.

Speaking in Harrisburg, Pennsylvania, Plosser did not specify when he thinks the Federal Reserve should reverse course.

At its last meeting, the Fed voted unanimously to continue as planned with its $600 billion bond purchase program, designed to lower interest rates and stimulate growth, which is scheduled to end in June.

The Fed's policy committee is due to meet next in April and its members are expected to debate its bond-buying program, including whether to raise rates.

Meanwhile, Plosser said keeping the U.S. inflation rate low should be the Fed's top priority and he is cautiously watching whether the Fed gets behind the curve.

Changes in the Fed's easy money policy will be made before it is clear the U.S. has emerged from the recession, he said.

But he noted that the Fed's ability to impact economic policy, and its controls over such economic indicators as unemployment, are limited, since many of those issues are political in nature.

Plosser said he said he would like to see the Fed commit to headline inflation being at about two percent over a period of two years as a way to build credibility.

Now there are going to be months when it's going to be much higher than that... but we need to commit that that is our objective... that won't get rid of all the fluctuations... will help build credibility, he said.

(Reporting by Edith Honan;)

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