Fed's Tarullo against 2015 rate hike amid Fed split over timing

By Jason Lange and Lindsay Dunsmuir

(Reuters) - Federal Reserve Governor Daniel Tarullo on Tuesday said the Fed should not hike interest rates this year, in comments that point to sharp divisions within the U.S. central bank over America's readiness for higher rates.

Tarullo, who rarely comments in public on monetary policy, is the second Fed governor this week to urge caution on the timing of rate hikes.

Fed Chair Janet Yellen and Vice Chair Stanley Fischer have recently said they support raising rates this year, but an increasingly vocal group of policymakers warn a global economic chill could weigh heavily on the U.S. economy.

"Given where I think the economy would go, I wouldn't expect it would be appropriate to raise rates," Tarullo said when asked in an interview with broadcaster CNBC if rates should rise this year.

Inflation in the United States has been persistently below the Fed's 2 percent target since the 2007-09 recession and policymakers worry this leaves the economy especially vulnerable to economic shocks, such as a potentially sharp slowdown in China.

Fed Governor Lael Brainard on Monday said the Fed should hold off on rate hikes until it is clear that trouble in China and other international risks will not push the U.S. recovery off course.

Tarullo said inflation has not rebounded as one would expect given the recent fall in the U.S. jobless rate and that there were disinflationary pressures in the global economy, so it was unclear when price increases might accelerate.

"A premature rise might be harder to deal with than waiting a little bit longer," he said.

Tarullo, who is the Fed's point person for financial regulation, said policymakers should "really look for some tangible evidence of, for example, pickups in wages or inflation that allow us to make informed decisions based on the evidence."

(Reporting by Jason Lange and Lindsay Dunsmuir; Editing by Sandra Maler and Meredith Mazzilli)

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