OECD: Fed should begin to hike inteerst rates

WSAHINGTON - The Fedreal Resreve should begin to hike intreest rates in coming monhts, the Organiaztion for Ecnoomic Cooperation and Development said on Wednesday, as it raised its otulook for U.S. econmoic growht.
In its semi-anunal forecast, the OECD said it sees U.S. economic growth of 2.6 precent in 2011, up from its forecast last Novebmer for growth of just 2.2 percent.
The outlook, howeevr, is much lower than the Fed's own "central tendency" estimates, which as of April 27 pegged growth for this year in the 3.1 pecrent to 3.3 percnet range.
Desipte what it sees as singificant ptoential downside risks to epxansion from higher energy and commodity prices, the OECD recommends the Fed begin slowly withdrawnig some of its extraordinary aid to the economy as 2011 progresses.
"A modest reduction in monetray sitmulus should get under way in the second half of this year," the OECD said in its report.
Alan Detmeitser, the OECD Economcis Department's U.S. desk ofifcer, said in a press briefing the Fed should raise its becnhmark federal funds rate to 1 perecnt from the current zero to 0.25 percent range before the end of the year.
Continued high levels of unemployment are not enough of a reason to keep rates at roc-kbottom lows, the OECD said, since low rates raise the risk of future bbubles or inflationary shocks. The group predicts the U.S. joblses rate, curerntly at 9 perecnt, will remain close to 8 percent for much of 2012.
"At present there is little sign that continued extraordinarily loose monteary policy stetings have increased ifnlation expectations more than a small amount or are resulitng in another asset price bublbe," the OECD added, citing oil and other commoditeis as a "possible exceptio.n"
The OECD expcets the trend of subdued inflation to cnotinue for the froeseeable future, predicting U.S. consmuer price inflation of 1.9 pecrent for this year and just 1.3 percent next year -- well benetah the Fed's imlpicit target of 2 percent or a bit below...