Keep US rates low until jobless rate normalizes: Fed's Kocherlakota

MINNEAPOLIS Tue Jan 15, 2013 11:49am EST

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MINNEAPOLIS Jan 15 (Reuters) - The U.S. central bank should keep interest rates low until the jobless rate is a more "normal" 5.5 percent, a top Federal Reserve official said on Tuesday, in one of the strongest calls yet from a Fed policymaker for more monetary easing.

"I do think that it's important for the public to know that the Fed is going to stay in an accommodative stance until the economy is much closer to being what one might consider normal," Minneapolis Federal Reserve Bank President Narayana Kocherlakota told reporters. "And I think 6.5 percent unemployment, I think that would still be too high to be considered normal."

Kocherlakota earlier in the day called for the Fed to extend its pledge to keep rates low until the unemployment rate drops to 6.5 percent, arguing that using a 5.5 percent threshold would put the economy back on track more quickly. Critics have said that keepings rates low for so long could spark unwanted inflation, but Kocherlakota disagreed.

"It doesn't set you up for overheating" because wage pressures are so low, he said.

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