The Federal Reserve could hike interest rates in mid-2015 if the U.S. economy continues apace, but monetary accommodation is needed for now because inflation "is likely to remain weak for some time," a Fed governor said on Monday.
Fed Governor Jerome Powell, speaking on CNBC television, said the U.S. central bank would need to see progress toward its 2-percent inflation goal before tightening policy. While low global inflation is a risk for the United States, Powell added he is "cautiously optimistic" on the U.S. economy's prospects because of good recent job growth.
The Fed has kept rates near zero for nearly six years to spur recovery from recession. But gradual improvement has led financial markets and Fed policymakers to predict the beginning of rate hikes around the middle of next year.
"If we stay on the current path it would make sense to raise rates some time during 2015, perhaps in the middle of 2015," said Powell, one of five influential Fed governors. "The time to raise rates is coming, it's not here yet," he said, because inflation is too low and unemployment, at 5.8 percent, too high.
"I'd love to be the one who sees inflation coming first but I just don't see it," Powell added. "Inflation is weak around the world. Inflation is weak here. Energy prices are low here - that's going to feed into inflation (readings) here in the United States for a while. Inflation is likely to remain weak for some time."
Powell said a rate rise is totally dependent on progress in the economy, not on a fixed date. He also highlighted the risk that economic weakness in Europe, China, Japan and Latin America could transmit through trade to the United States.
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