Fed's Kocherlakota: Rates could go up in late 2011

By Charles Riley, staff reporter


NEW YORK (CNNMoney) -- Minneapolis Fed President Narayana Kocherlakota said Thursday that the central bank could raise interest rates by the end of this year.

Kocherlakota is the first Fed official to explicitly say interest rates might be increased, and to lay out a timetable for action. Since December 2008, the Fed has kept interest rates unchanged near historic lows between 0% and 0.25%.

Kocherlakota made his comments in an interview with reporters from the Wall Street Journal.

Kocherlakota said he expects the economy to grow about 3% this year, and that if underlying inflation continues to ramp up, the Fed will end its QE2 bond buying program in June as planned.

If inflation does increase, that might move the Fed to start walking rates back up from their historic lows.

If core inflation increases by 50 basis points over the course of 2011, the usual response would be to raise the target rate by even more than the increase in observed inflation, Kocherlakota told the Journal.

That means an increase of more than 0.5% for short-term interest rates.

Adding to the intrigue, Kocherlakota holds one of the Federal Open Market Committee's voting seats this year, lending more weight to his words.

The Minnesota Fed chief also downplayed the long-term impact of the twin Japanese natural disasters and still unfolding nuclear crisis.

"There's a more psychological channel of how these uncertainties impact financial markets," he told the JournalTo top of page

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