HELENA, Montana (Reuters) - The Federal Reserve Bank will “eventually” sell assets and raise rates to head off inflation, but there are currently few signs of rising prices, a top Fed official said on Thursday.
“Right now there’s not really much sign of inflationary pressures building up, and I can assure you that that’s something I am watching very carefully,” Minneapolis Fed President Narayana Kocherlakota told a group of local business leaders and citizens in Helena, Montana.
“If we start to see that increase,” he added, “that’s when you have to start to think about, ‘OK, inflationary pressures are building up, we are going to have to raise rates.'”
The Fed last November began buying $600 billion in long-term Treasury debt, adding to asset purchases designed to lower borrowing costs in the U.S. and boost the economy.
Some Fed officials have called for an early end to the purchases, which are slated to run through June. Kocherlakota, who votes on monetary policy at the Fed this year, gave no sign of siding with his more hawkish colleagues.
He emphasized instead that the recent rise in gas and food prices that has been pushing up headline inflation is likely to be transitory.
“Core inflation is very low right now,” he said, referring to a measure of price rises that strips out volatile fuel and food costs. “Core inflation gives a much better sense of where inflation is going in the future.”
Kocherlakota’s view squares with that of most of the Fed’s policy-setting committee, who voted unanimously last month to press on with the Fed’s current round of quantitative easing, known as QE2. The panel next meets in about two weeks.
The Fed’s plan is “at some point” to sell the more than $2 trillion of U.S. Treasury securities and mortgage-backed debt it has accumulated, Kocherlakota said. The U.S. central bank must also eventually raise rates or risk fueling inflation, he said.
He did not suggest any specific time frame or sequence for selling the debt or raising rates, but his comments on low inflation suggest he does not see those actions as imminent.
He was speaking in response to a question from a member of Hometown Helena, a group of citizens and business leaders.
Editing by Padraic Cassidy