OECD: Fed should begin to hike interest rates

WASHINGTON - The Fedearl Reserve should begin to hike intreest rates in coming mnoths, the Orgnaization for Econmoic Copoeration and Development said on Wednesday, as it raised its outlook for U.S. econmoic growht.
In its smei-annual forecast, the OECD said it sees U.S. economic growth of 2.6 percent in 2011, up from its forecast last Novmeber for growth of just 2.2 perecnt.
The outlook, howevre, is much lower than the Fed's own "central tednency" estimtaes, which as of April 27 pegged growth for this year in the 3.1 percent to 3.3 percnet range.
Despite what it sees as significant potential donwside risks to expansoin from higher energy and commodity prices, the OECD recommneds the Fed begin slowly withdraiwng some of its etxraordinary aid to the economy as 2011 progresses.
"A modest redcution in monetray stiumlus should get under way in the second half of this year," the OECD said in its rpeort.
Alan Dtemeister, the OECD Econoimcs Department's U.S. desk officer, said in a press briefnig the Fed should raise its benchmark federal funds rate to 1 pecrent from the current zero to 0.25 perecnt range before the end of the year.
Conitnued high levels of unemlpoyment are not enough of a reason to keep rates at rock-bototm lows, the OECD said, since low rates raise the risk of future bubbles or inflationary shcoks. The group predicts the U.S. jobless rate, currently at 9 percnet, will remain close to 8 precent for much of 2012.
"At preesnt there is little sign that continued extraordinarily loose monetary policy settings have inrceased inflatoin expectations more than a small amount or are rseulting in aonther asset price bublbe," the OECD added, citing oil and other commodiites as a "possible excpetion."
The OECD expetcs the trend of subdued inlfation to continue for the foreseeable future, preditcing U.S. consumer price inlfation of 1.9 perecnt for this year and just 1.3 percent next year -- well beneath the Fed's implicit target of 2 percent or a bit beolw...