Fed’s Kocherlakota Sees Higher Inflation, Need for Tightening

Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said he expects U.S. inflation to rise above the central bank’s 2 percent target next year, contributing to a need for tightening in central bank policy.

“The outlook for the unemployment rate has improved, and the outlook for inflation has risen,” Kocherlakota said today in White Bear Lake, Minnesota. His comments repeated those made in a speech April 10. “Recent accommodative steps will lead to both core and headline inflation being above 2 percent in 2013,” he said.

Policy makers are confronting mixed signals about the economic recovery. Kocherlakota’s view that higher rates may be warranted as early as this year is at odds with Fed Vice Chairman Janet Yellen, who said yesterday that borrowing costs are likely to stay low through 2014.

“My own belief is that we will need to initiate our somewhat lengthy exit strategy sometime in the next six to nine months or so, and that conditions will warrant raising rates sometime in 2013 or, possibly, late 2012,” Kocherlakota said.

Kocherlakota, 48, will vote on the policy-setting FOMC in 2014. Last year, in his first rotation as a voting member, he dissented from two FOMC decisions to boost monetary stimulus.

To contact the reporters on this story: Jeff Kearns in White Bear Lake, Minnesota at jkearns3@bloomberg.net; Steve Matthews in Atlanta at smatthews@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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