| March 4
March 4 The U.S. Federal Reserve need not raise
interest rates before the economy reaches full employment,
according to remarks from a top Fed official released on Monday.
"I think there's this vision out there...that somehow we
have to raise rates before we get to full employment," Narayana
Kocherlakota, president of the Minneapolis Federal Reserve Bank,
said in comments made on Dec. 19 and posted to the regional
bank's website on Monday.
"If you say you're always going to be raising rates before
you get to full employment, you're defeating yourself. You're
tying your hands behind your back," said Kocherlakota, who made
his remarks in a December interview conducted by the Minneapolis
A week before Kocherlakota's remarks, the Fed had promised
to keep rates low until unemployment drops at least to 6.5
percent as long as inflation stays under control. Kocherlakota
had advocated the Fed set its unemployment threshold at 5.5
percent to increase stimulus to an economy weighed down by
Full employment is the lowest level of unemployment the
economy can handle before upward wage pressures arise.
Eventually, Kocherlakota suggested, the Fed may need to
lower its unemployment threshold closer to a level consistent
with full employment. Fed officials see that as between 5.2
percent and 6 percent.
"(L)owering it is perfectly in keeping with what we've said
so far," he said. "I worry that we'll come to a point where
we're going to want to do this later anyway -- that is, lower
the unemployment threshold -- and we'll have lost all the
stimulus we could have provided in the intervening period by
lowering it ahead of time."
"I think, under current conditions, we have a lot of room to
influence economic activity without generating inflation that's
noticeably above 2 percent," Kocherlakota said.