Fed's Kocherlakota: Economy Not Ready for Higher Rates in 2015

        By Michael S. Derby

        NEW YORK--Federal Reserve Bank of Minneapolis President Narayana Kocherlakota reiterated on Tuesday his belief the economy won't be ready for higher interest rates this year.

        Given that inflation has been persistently below the Fed's official 2% target and is likely to stay there for several more years, "raising the Fed funds rate in 2015 would be inappropriate, because such an action would serve to further delay the return of inflation to target."

        The official said that while the job market had a good year in 2014, it is still trying to climb out of a deep hole. Because of that, the Fed should be doing all it can to aid further job market gains, which would in turn help push inflation back to desired levels.

        "The data on inflation and employment show that we could produce and consume more as a country by utilizing more of our available human resources," Mr. Kocherlakota said. "Monetary policy can--and should--be used to help make that desirable outcome happen," he said.

        Mr. Kocherlakota's comments came from the text of a speech prepared for a town-hall event held by his bank in Winona, Minn. He isn't currently a voting member of the monetary policy setting Federal Open Market Committee. The official is due to leave the bank in early 2016.

        Mr. Kocherlaktoa has been a steadfast opponent of any move to raise interest rates this year, something many of his colleagues would like to see. Almost all central bank officials see rates moving up off of current near-zero levels at some point over 2015. A number of central bankers had been gravitating toward favoring the move at some point between June and September, but weak data over the start of the year has introduced new uncertainty into the outlook, and suggests Fed officials may be viewing an increase more cautiously.

        For some time now, Mr. Kocherlakota has argued any rate raise should be delayed until next year. Faced with falling short of its 2% inflation target for nearly three years, the official sees no need to boost borrowing costs when the Fed is falling so short on this key mandate.

        Most Fed officials expect to see a slow rise in inflation, and attribute much of the current weakness to the sharp drop in oil prices seen over recent months.

        (END) Dow Jones Newswires

        April 14, 2015 20:00 ET (00:00 GMT)

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