The U.S. Federal Reserve should be wary of raising rates while inflation is running below its 2-percent goal, because doing so could undermine its credibility and unmoor inflation expectations, a top Fed official said on Monday.
“I think we need to be very cautious and careful about starting to raise rates, because we do want to be sure that inflation is on the path back to 2 percent,” Minneapolis Fed President Narayana Kocherlakota told the Economic Club of Marquette County in Michigan’s Upper Peninsula.
Boosting rates too early could lower inflation further, undermining the public’s belief that the Fed is serious about its inflation target and raising the threat of a debilitating bout of falling prices.
Imposing a two-year deadline on reaching the Fed’s inflation target would be helpful because it would help bring unemployment down faster, Kocherlakota added.
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