The Federal Reserve can reasonably wait to raise interest rates until mid-2015 without risking an undesirable rise in inflation, an influential Fed policy maker said on Tuesday.
“We think we can get the unemployment rate considerably lower and still not have an inflation problem,” said William C. Dudley, president of the Federal Reserve Bank of New York. “We also don’t have inflation at a level consistent with price stability.”
In May, the unemployment rate stood at 6.3 percent, the lowest level since the end of 2008 and unchanged from April. Inflation has been running below the Fed’s 2 percent goal, although some recent readings have been firmer.
“The market expectations are that the Federal Reserve will start to raise short-term interest rates around the middle of 2015 — that sounds to me like a reasonable forecast,” Mr. Dudley told a Puerto Rico accounting group. “But, you know, forecasts often go astray.”
Mr. Dudley, who as chief of the New York Fed holds a permanent vote on the central bank’s policy-making panel, speaks from experience: In the last several years the Fed has been frequently overly optimistic about economic growth prospects, and officials have had to repeatedly lower their forecasts.
At the same time, the Fed has underestimated how quickly unemployment will drop; it now sees the jobless rate as approaching near normal levels this year.
Mr. Dudley’s comments, which often reflect dominant sentiment at the Fed, suggest the central bank is in no hurry to raise rates from their current near-zero level once it winds down its bond-buying stimulus this year.
Traders of short-term interest rate futures currently peg June 2015 as the likely start of an expected gradual run of interest rate increases by the United States central bank.
Speaking at a separate event, Charles I. Plosser, the hawkish president of the Federal Reserve Bank of Philadelphia, said he had “growing concerns that we may have to adjust our communications in the not-too-distant future. Specifically, I believe the forward guidance in the statement may be too passive.”
Mr. Plosser’s comments reflect concern among a minority at the Fed that the central bank may wait too long before raising rates, allowing inflation to spiral upward and out of control.
Mr. Dudley made it clear on Tuesday that he did not share those concerns.
“In the current environment, it is still very, very appropriate to continue to follow a very accommodative monetary policy because we’re making progress toward our objectives but we have not yet reached our objectives,” Mr. Dudley said.
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