PALO ALTO Calif. (Reuters) - A top U.S. central banker who has consistently pushed for easier monetary policy suggested Thursday that he could support an interest rate hike next year if he starts to see inflation rising faster than he now expects.
In remarks prepared for delivery to a symposium at Stanford University, Minneapolis Fed President Narayana Kocherlakota reiterated his view that inflation will not rise back to the Fed’s 2 percent goal until 2018, making a rate hike next year “inappropriate.”
But for the first time in recent speeches, Kocherlakota nodded explicitly to the possibility of a rate hike next year, the timing anticipated by all but one of his colleagues at the Fed.
“My inflation outlook could rise,” Kocherlakota said, emphasizing that his views are driven by data. “If so, my preferred date of interest rate ‘lift-off’ would come forward in time - possibly into next year.”
For the last two years, Kocherlakota has been one of the Fed’s most dovish policymakers, pushing for easier policy even as many of his colleagues are acknowledging the likely need to tighten monetary policy sometime in the next 12 months or so.
Kocherlakota cast the lone dissent at the Fed’s policy-setting meeting last month, saying that low inflation and signs that inflation expectations are falling should prompt the Fed to continue its monetary stimulus.
Instead, citing diminishing slack in the labor market, the central bank completed the wind-down of its bond-buying program. That step was seen as paving the way for what many economists believe will be the start of a round of rate hikes next June. The Fed has kept rates near zero since December 2008.
Kocherlakota, for his part, said on Thursday that a falling unemployment rate alone should not prompt a rate hike unless it leads to unduly high inflationary pressures.
“Despite recent and anticipated falls in the unemployment rate, I don’t see such pressures at this time,” he said.
Reporting by Ann Saphir; Editing by Leslie Adler