NICOLLET, Minnesota Two Federal Reserve officials expressed concern about the central bank's ultra-loose policy on Tuesday, keeping pressure on their colleagues not to launch another round of monetary easing.
Minneapolis Federal Reserve Bank President Narayana Kocherlakota said the U.S. central bank should start pulling back from its extraordinary support for the economy sometime in the next six to nine months.
"Conditions will warrant raising rates some time in 2013 or, possibly, late 2012," Kocherlakota said.
Echoing his concerns, Dallas Fed President Richard Fisher said company leaders are peppering him with concerns about the central bank's aggressive monetary stimulus, which they believe is setting the stage for inflation.
"To a person that I speak to, I am pleaded with, 'please no more liquidity'," Fisher told students at the University of Oklahoma's Price College of Business.
There is "real concern that with our expanded balance sheet that we are just a little bit of an ember in what could become an inflationary fire," he said.
The central bank has cut benchmark interest rates to near zero and bought $2.3 trillion of bonds to accelerate a weak economic recovery. Financial markets are watching closely to see if officials will opt for another round of bond buying in a bid to bring down the nation's 8.2 percent unemployment rate.
Kocherlakota and Fisher are two of the Fed's most inflation-focused hawks and neither is a voting member of the central bank's policy-setting panel this year. Their views appear to be outside the prevailing consensus, as expressed by Fed Chairman Ben Bernanke, that it is too soon to declare the recovery healthy enough to take a further round of easing off the table.
A speech by Fed Vice Chair Janet Yellen on Wednesday will offer a clearer view of how that consensus is shaping up ahead of an April 24-25 policy gathering.
News last week that employment growth slowed in March rekindled speculation that further Fed stimulus may be in the offing. Most major Wall Street firms expect the Fed to launch a third round of bond buying, a Reuters poll found on Monday.
Both Kocherlakota and Fisher played down the importance of the jobs report, warning against drawing conclusions from a single data point. Still, Kocherlakota declined to rule out further easing if the economic took a turn for the worse.
"If the outlook for inflation fell sufficiently and/or the outlook for unemployment rose sufficiently, then I would recommend adding accommodation," he added.
Another Fed official who spoke on Tuesday, Fed Governor Daniel Tarullo, did not address the outlook for monetary policy or the economy. He said U.S. banks still have work to do to improve the amount and quality of their capital as the sector stabilizes after the 2007-2009 crisis.
Since January, the Fed has said it was not likely to raise rates until at least late 2014. However, Kocherlakota argued the central bank should change its guidance, saying the strengthening economy was likely to force a rate hike sooner.
He also urged the Fed to publish a "public contingency plan" that lays out likely policy reactions to a range of paths the economy could take. Publishing such a document would reduce public uncertainty about how to react to different economic outcomes, he said.
The Minneapolis Fed president said he expects the unemployment rate to fall to 7.7 percent by the end of 2012 and about 7 percent by the end of the following year.
Inflation should be around 2 percent this year and slightly above the Fed's 2 percent target for next year, he said.
"I see ... changes in economic conditions as improving over time, but only slowly," he said. "It will take at least several more years for the damage ... (from the recession) to heal."
Speaking with reporters, Fisher said he did not necessarily share the view of his business contacts on inflation, projecting that it will settle near the Fed's 2 percent target.
Still, he said, he was surprised by what appears to be a deepening fear.
"I am beginning to hear that there are concerns particularly in the small business community about cost push pressures," Fisher said. "They don't have the pricing power that they would like but they are feeling the squeeze on the cost side."
(Reporting by David Bailey, Mark Felsenthal in Washington, Ann Saphir in Norman, Oklahoma, and Chris Reese in New York. Writing by Mark Felsenthal; Editing by Neil Stempleman, Chizu Nomiyama and Andrew Hay)