The Fed may have to increase rates before 2014 but for now accommodation is appropriate, Federal Reserve Bank of Minneapolis president Narayana Kocherlakota said Tuesday.
The decline in household worth as a result of the financial crisis negatively affected demand and productive capacity, but "over the past four years, the [Federal Open Market Committee's] highly accommodative policy has been successful at keeping demand close to productive capacity, as is evidenced by how close inflation has been to 2%. I see no need for additional accommodation at this time, and I believe that conditions will warrant raising rates well before the end of 2014," Kocherlakota told the Southern Minnesota Initiative Foundation, according to text of his prepared remarks released by the Fed.
"I would say that I see no need for still more accommodation at this time," he said. "Indeed, as I mentioned earlier, I believe that the FOMC's recent accommodative steps will lead to both core and headline inflation being above 2% in 2013."
Kocherlakota said he advocates a reduction in accommodation. "From the point of view of the dual mandate, the outlook is better than a year ago — and so we should have less accommodation in place," he said.
But, he cautioned, "this does not mean that we should be raising rates anytime soon."