Raise interest rates to improve economy, says head of Mpls. Fed

The head of the Minneapolis Federal Reserve Bank said improving economic conditions could accelerate when the Fed pushes interest rates higher.

Right now the Federal Reserve System is committed to low interest rates through 2014. Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said he believes that policy should be reexamined and that economic conditions will warrant raising interest rates possibly as soon as later this year, or more likely in 2013.

Speaking at a southern Minnesota dairy farm, Kocherlakota said he believes improving economic conditions means the Fed's timetable could be moved up by at least a year.

"Conditions will warrant raising rates sometime in 2013, or possibly late 2012," said Kocherlakota.

Kocherlakota is not currently a member of the interest rate policy setting committee. He expects economic output to grow 2.5 to 3 percent in each of the next two years. He also expects the unemployment rate to fall.

"I expect the unemployment rate will continue to fall, but slowly," Kocherlakota said. "It's 8.2 percent today. I expect it to be around 7.7 [percent] by the end of the year and to around 7 percent by the end of 2013."