Fed's Tarullo says worried about too-low inflation

Daniel Tarullo, member of the Board of Governors of the Federal Reserve System, in Washington on February 5, 2014. REUTERS/Joshua Roberts

WASHINGTON (Reuters) - Federal Reserve Governor Daniel Tarullo said on Monday there is still a lot of uncertainty on inflation and that the path of interest rate hikes should be influenced by how much inflation moves towards the Fed’s 2 percent target rate.

“It’s hard to overlook the fact that both market-based measure of inflation compensation and survey-based measures of inflation expectations are sort of near historic lows … it will be important for us to keep our eye on both those kinds of measures,” Tarullo said in an interview with Bloomberg TV.

As such, too much attention recently had been focused on particular months for rate rises rather than on the pace of monetary tightening, he said.

Tarullo noted that the U.S. economy seemed to be “chugging along” but said low inflation meant that despite strong jobs gains, it was still overall a mixed picture.

The Fed is widely expected to raise it interest rates for the first time in about a decade at its Dec. 15-16 policy meeting, with the debate already shifting to the pace of rate hikes going forward.

Tarullo, who is the Fed’s point person on financial regulation, also said that there could be further moves on making sure banks are robust enough to withstand shocks.

“I think there’s a pretty good chance … whether through the incorporation of some or all of the capital surcharge as a post-stress minimum, or through other mechanisms such as more emphasis on shared counterparties, that there will be some net increase in the post-stress minimum capital requirements,” he said.

Reporting by Lindsay Dunsmuir; Editing by Meredith Mazzilli