Tags: federal reserve | interest rate | hike | Kocherlakota

Fed Rate Hike in 2015 Is 'Inappropriate,' Kocherlakota Says

Wednesday, 15 April 2015 07:39 AM

Raising interest rates this year, as most Federal Reserve officials expect, would be "inappropriate" because it would delay the return of too-low inflation to the U.S. central bank's 2 percent goal, a top Fed official said.

A rate hike would also work against the Fed's other goal of full employment, Narayana Kocherlakota, president of the Minneapolis Fed, said in remarks prepared for delivery before a Town Hall at Winona State University.

"The Fed can best achieve its objectives by keeping the fed funds rate target at its current level during this calendar year," Kocherlakota said.

Kocherlakota's view seems increasingly out of the mainstream among Fed policymakers, nearly all of whom are open to rate hikes this year. Several are pushing for an increase as soon as June. The stronger labor market, these policymakers say, means the Fed ought to start tightening policy soon to prevent the economy from overheating.

Kocherlakota's appearance Tuesday is his third in a week during which he has argued strongly against tightening monetary policy.

He warned that too-low inflation is a sign that economic resources are being underutilized and the absence of wage pressures suggests the U.S. economy is still some distance from full employment.

The percentage of people working as a percent of the total population, which fell sharply after the financial crisis, could be "much higher" without sparking inflation, he said.

He also said that while the risk of an outright decline in prices is low in the United States, low wage growth could push down on inflation, slowing its increase.

The threat of such so-called disinflation is worrisome, he said, because it means inflation is moving away from, and not toward, the Fed's 2 percent goal.

Kocherlakota repeated his view that inflation will rise back to 2 percent over the next three years, but said he is more worried about the downside risk to that forecast than the upside risks.

© 2019 Thomson/Reuters. All rights reserved.

   
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Raising interest rates this year, as most Federal Reserve officials expect, would be inappropriate because it would delay the return of too-low inflation to the U.S. central bank's 2 percent goal, a top Fed official said.A rate hike would also work against the Fed's other...
federal reserve, interest rate, hike, Kocherlakota
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2015-39-15
Wednesday, 15 April 2015 07:39 AM
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