Kocherlakota Would Back 2015 Rate Rise If Inflation Outlook Rose

Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said he could support a rate increase next year if the inflation outlook rose, softening his stance that rates should not rise at any meeting in 2015.

The central bank’s preferred gauge of price increases, the Personal Consumption Expenditures index, probably won’t return to the Fed’s 2 percent target until 2018, Kocherlakota said today in the text of a speech to be delivered in Stanford, California. The Minneapolis Fed chief cast the only dissent at the last Federal Open Market Committee meeting Oct. 28-29.

“Under my current outlook, it will be inappropriate for the FOMC to raise interest rates during 2015,” he said. “My inflation outlook could rise. If so, my preferred date of interest rate ‘lift-off’ would come forward in time -— possibly into next year.”

He repeated that “distressingly weak” labor markets make it inappropriate for the Fed to raise rates next year amid a sluggish inflation outlook.

Even as the jobless rate has declined to a six-year low of 5.8 percent last month, that’s not a reason to tighten “unless that fall is generating unduly high inflationary pressures,” Kocherlakota said. “I don’t see such pressures at this time.”

Kocherlakota has explained his dissent at the last meeting by saying he wanted a stronger commitment to getting inflation up to 2 percent, and that bond buying should have been continued for longer. The Fed ended its third round of purchases last month after pushing the balance sheet to almost $4.5 trillion.

Most policy makers estimate that rates will rise sometime in 2015. Fed funds futures show investors expect the main policy rate will increase in December 2015.

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