Concerns over growth prospects are prompting people to buy U.S. assets, and "unless you provide more supply you are going to face an increase in the price of those assets, which shows up as a decline in the rate of inflation," Minneapolis Fed President Narayana Kocherlakota said. "I think at some point you just have to give in to the data, both in the financial markets and what we see in the price of goods and services."
Kocherlakota is among the U.S. central bank's biggest opponents of tighter policy in the face of prolonged low inflation and a slipping inflation outlook. A government report early on Friday showed inflation fell in December.
Wage growth has also been sluggish, and Fed officials have said they would like to see stronger signs that pay is increasing. Kocherlakota, who does not vote on Fed policy this year, said he expects wage increases to accelerate this year, but added that lack of any such sign so far means the Fed can continue to keep interest rates near zero without fear of creating excess inflation.
"Obviously you want to see more wage growth, but in some ways this is good news because a lot of economists were worried that we had structural damage to the labor markets from the financial crisis," Kocherlakota said. "We haven't seen those wage increases yet. I think that should give us confidence that we have more room to run."
Kocherlakota wants the U.S. central bank to hold off on any interest-rate increases until 2016. Nearly all of his colleagues at the U.S. central bank think a 2015 rate hike will be appropriate.
(Reporting by David Bailey; Writing by Ann Saphir; Editing by Chris Reese)
By David Bailey
