FED Timing differs on Need to Keep Low Rates

Federal Reserve officials widened a rift over a commitment to keep rates near zero through late 2014 as an unexpected increase in claims for jobless benefits added to evidence of a weakening labor market.

William C. Dudley, president of the New York Fed, and Vice Chairman Janet Yellen said the 2014 time-frame is needed to lower unemployment from 8.2 percent. Minneapolis Fed President Narayana Kocherlakota said rising inflation may prompt an interest-rate increase as early as this year, while Philadelphia's Charles Plosser said policy should hinge on economic performance, not a calendar commitment.

Central bankers next meet in two weeks to consider policy for an economy that Dudley and Yellen said may be sapped by cuts in government spending and the European debt crisis. Dudley and Yellen backed Chairman Ben S. Bernanke's view that progress in reducing joblessness may not be sustained as growth cools.

“There is a debate going on, but right now the power rests with the chairman and governors” favoring the 2014 rate outlook, said Joseph Lavorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. Even so, the comments suggest “the Fed does not feel it has to take additional easing,” he said.

Atlanta Fed President Dennis Lockhart and the St. Louis Fed's James Bullard have expressed skepticism in recent days over the need for more easing. Lockhart is a voting member of the Federal Open Market Committee this year, while Bullard, Plosser and Kocherlakota are not. Dudley has a permanent vote and serves as vice chairman of the FOMC.

Bloomberg