By David Bailey
BLOOMINGTON, Minn. Oct 4 The Federal Reserve
should do "whatever it takes" to drive down U.S. unemployment,
even if this means courting concerns of another asset price
bubble, or if inflation pops temporarily above two percent, a
senior U.S. central banker said on Friday.
"The labor market remains disturbingly weak. The good news
is that, with low inflation, the FOMC has considerable monetary
policy capacity at its disposal with which to address this
problem," said Minneapolis Fed President Narayana Kocherlakota,
referring to the policy-setting Federal Open Market Committee.
His comments closely followed a speech he gave last week.
"Doing whatever it takes will mean keeping a historically
unusual amount of monetary stimulus in place - and possibly
providing more stimulus," he said in prepared remarks.
Kocherlakota added that this would be the case "even as"
rising asset prices courted concerns of another bubble, or the
medium term outlook for inflation rose above 2 percent, the
Fed's stated medium-term goal.
"It may not be easy to stick to this path. But I anticipate
that the benefits of doing so, in terms of employment gains,
will be significant," he said.
The Fed stunned markets last month by opting to continue to
keep buying bonds at an $85 billion monthly pace, despite
widespread expectations it would start to scale back, signaling
the end to an unprecedented phase of ultra-easy monetary policy.
Its caution has since appeared to have been vindicated by
economic unease caused by political gridlock in Washington.
A stand-off between President Barack Obama's Democrats and
Republican Tea Party conservatives triggered a government
shutdown and is courting a damaging debt default, if lawmakers
fail to raise the U.S. debt ceiling by Oct. 17.
Officials, including from the Fed, warn this could
potentially tip the United States back into a severe recession.
Kocherlakota did not refer to the battles in Washington in
his prepared remarks. But he did stress the need to act
decisively to speed up the pace of U.S. hiring.
"In 2013, the FOMC's goal should be to return employment to
its maximal level as rapidly as it can, while still keeping
inflation close to, although possibly temporarily above, the
target of 2 percent," he said.