Fed voting member Kocherlakota in a speech is covering all his bases in terms of his thoughts on where future policy will go if it were up to him. IF core inflation reaches his estimate of 1.5%, he will vote for interest rate hikes. IF core inflation “were to fall over the course of ’11 relative to ’10, then it would be desirable for the FOMC to ease further in response to that decline. I imagine that easing would take place through the purchase of more long term government securities.” Because on inflation he expects the former to be a much more likely outcome than the latter, he thinks it “would be appropriate for the FOMC to raise the fed funds target interest rate by a modest amount at the end of 2011.” He also says “my baseline forecast about inflation was wrong last year, and could well be again this year.” Bottom line, rates may go up by year end or they may not with now inflation the deciding factor according to one member’s opinion. And to the point of whether we’ll see QE3 or not, Kocherlakota tells us what will be the deciding factor for him.
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