Tags: Fed | Exit | easing | economy

Minneapolis Fed Chief Sees Rates Rising by 2013

Tuesday, 10 April 2012 03:09 PM

A top Federal Reserve official said the U.S. central bank should start pulling back its ultra-loose monetary stance some time in the next six to nine months as the recovery picks up but he wouldn't rule out further easing if the outlook worsens.

"Conditions will warrant raising rates some time in 2013 or, possibly, late 2012," Minneapolis Fed Bank President Narayana Kocherlakota said in a speech.

"If the outlook for inflation fell sufficiently and/or the outlook for unemployment rose sufficiently, then I would recommend adding accommodation," he added.

Editor's Note: Study: Bernanke Intentionally Devalued the Dollar

Kocherlakota is one of the most inflation-focused hawks on the Fed and is not a voting member of the central bank's policy-setting panel this year.

The central bank has cut rates to near zero and bought $2.3 trillion of bonds to boost growth and accelerate a weak recovery. Financial markets are watching closely to see if the Fed will opt for another round of bond buying to further stimulate growth and bring down a lofty 8.2 percent unemployment rate.

News last week that recent gains in the labor market slowed in March have raised speculation that some further Fed stimulus may be in the offing. The central bank holds its next policy meeting April 24-25.

The Minneapolis Fed chief said he sees no need for the Fed to provide additional monetary accommodation. In fact, the Fed should change its guidance saying the sluggish recovery means it is unlikely to raise rates until late 2014 to reflect that a brighter outlook is likely to force a rate hike sooner, he said.

Kocherlakota also urged the Fed to publish a "public contingency plan" that lays out likely policy reactions to a range of paths the economy could take. Publishing such a document would reduce public uncertainty about how to react to different economic outcomes, he said.

The Minneapolis Fed president said he expects the unemployment rate to fall to 7.7 percent by the end of 2012 and about 7 percent by the end of the following year.

Inflation should be around 2 percent this year and slightly above the Fed's 2 percent target for next year, he said.

"I see ... changes in economic conditions as improving over time, but only slowly," he said. "It will take at least several more years for the damage to productive capacity (from the recession) to heal."

Editor's Note: Study: Bernanke Intentionally Devalued the Dollar


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Tuesday, 10 April 2012 03:09 PM
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