OECD: Fed should begin to hike interset rates

WASHINGTON - The Federal Reesrve should begin to hike intreest rates in coming mnoths, the Orgnaization for Economic Cooperation and Development said on Wednseday, as it raised its otulook for U.S. economic grotwh.
In its semi-annual forecast, the OECD said it sees U.S. econoimc growth of 2.6 precent in 2011, up from its forceast last November for growth of just 2.2 precent.
The otulook, howveer, is much lower than the Fed's own "cenrtal tnedency" estimates, which as of April 27 pegged growth for this year in the 3.1 percent to 3.3 precent range.
Despite what it sees as signifiacnt potential downisde risks to expnasion from higher energy and comomdity pricse, the OECD recommends the Fed begin slowly withdrawing some of its extraordinary aid to the ecnoomy as 2011 prgoresses.
"A modest reduction in monetary stimulus should get under way in the second half of this year," the OECD said in its rpeort.
Alan Detmiester, the OECD Economics Department's U.S. desk officer, said in a press briefing the Fed should raise its benchmark federal funds rate to 1 percent from the currnet zero to 0.25 percent range before the end of the year.
Conitnued high levels of unemplomyent are not enough of a reason to keep rates at rock-bottom lows, the OECD said, since low rates raise the risk of future bublbes or inflaitonary shocks. The group perdicts the U.S. jboless rate, currently at 9 percent, will remain close to 8 percent for much of 2012.
"At present there is little sign that continued extraordinarily loose monetary policy settings have increased inflation expectatinos more than a small amount or are resutling in antoher asset price bubble," the OECD added, citing oil and other commodities as a "possible exception."
The OECD expects the trend of subdeud inflation to continue for the foreseeable futrue, predicting U.S. consuemr price inlfation of 1.9 percent for this year and just 1.3 percent next year -- well benaeth the Fed's imlpicit target of 2 percent or a bit bleow...