Another Federal Reserve official has come out against the United States central bank from raising interest rates, citing the labor market and uncertainty in the overall economy.
Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said Tuesday the central bank should be “extraordinarily patient” and delay any increase in interest rates until the second half of 2016. “Under my current outlook, I continue to believe that it would be a mistake to raise the target range for the fed funds rate in 2015.”
Most economists believe that the Fed could raise rates in June, or potentially in September.
Kocherlakota joins the growing chorus of Fed board members in opposing any rate hike. Kocherlakota, who is scheduled to step down from his post next year, said the benchmark federal funds rate should be increased to two percent by the end of 2017.
Moreover, Kocherlakota doesn’t buy into the notion that the Fed should raise rates to ward off excessive risk-taking in the financial markets.
“The good news is that Federal Reserve staff carefully monitors the financial system for exactly these kinds of vulnerabilities,” he added. “I see little evidence in their analysis to suggest that a monetary policy maker should see financial stability risks as being in any way material.”
Since the central bank’s congressional mandate has been to ensure price stability and maximum employment, Kocherlakota believes both will only be achieved in about several years. He also doesn’t see inflation reaching two percent for another three years.
With that being said, the Fed official does see some positives in the economy. He alluded to the “tremendous improvement” last year in the labor market. Nevertheless, Kocherlakota doesn’t think the labor market will return to pre-2006 levels for another three years.
These remarks come as New York Fed President William Dudley told a Newark business audience Monday that the timing of any rate hike remains uncertain due to the latest weak jobs report released last week. Dudley, who also pointed to the lackluster manufacturing and retail sales, believes the latest plethora of data may reflect “temporary factors to a significant degree.”
In the first-quarter, the U.S. gross domestic product expanded only one percent. In March, the economy added only 126,000 jobs, far below the estimates of 250,000. Dudley is also concerned about a climbing U.S. dollar and falling oil prices as possible threats to the growth of the U.S. economy.
Leave a Comment