Fed's Kocherlakota : 2015 Fed Rate Rise Would Be A Bad Idea

        By Michael S. Derby
        NEW YORK--Federal Reserve Bank of Minneapolis President Narayana Kocherlakota warned that any move to raise interest rates this year could imperil the job-market recovery and undermine confidence inflation will move back up to 2%.
        In remarks prepared for an event held by Market News International in New York, Mr. Kocherlakota continued his long-running campaign against any move to raise interest rates in 2015. Most central bankers expect to boost rates off of near-zero levels this year, with key officials pointing to the middle of 2015 as the most likely time for action. Most in the markets also expect the Fed to raise rates in the summer as well.
        In his remarks Tuesday, Mr. Kocherlakota reiterated that raising rates at a time when the job market still has room to improve further, in an environment where price pressures are weakening, is simply a bad idea. The official held a voting role on the monetary-policy-setting Federal Open Market Committee last year and dissented three times as Fed officials moved closer to lifting rates. Mr. Kocherlakota doesn't have a vote this year, and is set to leave his bank at the start of next year.
        Mr. Kocherlakota said in his speech that rate rises would make it harder to keep the economy adding jobs at the current pace. "The job market is--finally--on a highly desirable upward trajectory. We are more likely to continue on that welcome trajectory if the FOMC does not tighten monetary policy in 2015," the official said.
        Mr. Kocherlakota believes the Fed is playing a dangerous game with inflation. The Fed has fallen short of achieving its 2% price target for over two years now, and crashing oil prices mean headline inflation will likely be negative over the start of the year, if not longer. If the Fed raises rates in this inflation environment, Mr. Kocherlakota worries the public will come to believe the Fed doesn't actually care all that much about achieving its price target.
        "My own current assessment is that it will take a few years for inflation to return to 2% from its current low level," Mr. Kocherlakota said. "Raising the target range for the fed funds rate in 2015 would only further retard the pace of the slow recovery in inflation," he said.
        While the central banker didn't call for the Fed to take additional steps to push up inflation and drive down unemployment, he said the Fed could have done more in the past.
        "The FOMC underperformed in the past three years with respect to the price stability mandate and the employment mandate," he said. "By providing somewhat more stimulus, the FOMC could have stimulated at least somewhat more employment growth, without creating undue inflation."
        Mr. Kocherlakota also said legislation currently in Congress that would have the Fed operate by an explicit policy rule would likely complicate the actions of monetary policy.
        Write to Michael S. Derby at Michael.derby@wsj.com
        (END) Dow Jones Newswires

        January 13, 2015 17:00 ET (22:00 GMT)

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