Federal Reserve Bank of Minneapolis President Narayana Kocherlakota worried on Tuesday that the U.S. central bank may be getting ready to end its ultra-easy money-policy stance too soon.
Speaking with reporters after an address in St. Paul, Minn., the policymaker said the same worries that caused him to dissent at the most recent Federal Open Market Committee meeting in late October are likely to be in play again when officials meet next month.
Last month, officials edged closer to the increase in short-term interest rates most officials think will come some time next year. Mr. Kocherlakota opposed that evolution in Fed policy, and has argued repeatedly over recent weeks that he believes any move to raise rates next year would be a mistake given that inflation has been and will likely continue to be well below the Fed's 2% target. While he did not say if he would vote against the FOMC consensus again, he told reporters "the concerns I had in October, I anticipate having in December."
"We have to be very cautious" about sending signals that short-term interest rates will be lifted off of near zero levels too soon, given the current levels of growth and inflation, he said. "I think we're creating risks for ourselves on the credibility front," Mr. Kocherlakota said. "I do worry about an unduly tightening of monetary policy," he said, adding "I wish we were in a position where monetary policy was providing sufficient stimulus."
Mr. Kocherlakota has emerged as the Fed's most steadfast supporter of aggressive action to help spur better levels of growth and inflation that hits the Fed's 2% target. Many of his colleagues, however, are increasingly preparing for the day in which the Fed will raise rates. Many saw the Fed's decision last month to end its bond-buying stimulus campaign and upgrade its economic view as a step along the way to interest rate increases.
The continuing complication to raising rates has been the persistence of weak inflation. Current price pressures are up a mere 1.4%, and have been below the Fed's target for an extended period. Some officials are okay with that, but others, worried by weak global growth and even more tepid inflation in other nations, are cautious what impact this will have on the U.S. economy. Key Fed officials, in a view shared by many economists, believe the most likely time to raise rates is around the middle of 2015.
Mr. Kocherlakota still expects that inflation will rise over time. But he wants to see the evidence: "The main predictor of future inflation is inflation. And the fact that inflation has been as low as long as it has been, is a very tough drag to fight against."