LA CROSSE, WI, Sept 4 (Reuters) - The U.S. Federal Reserve should look to its own economic forecasts and decide to give the economy more policy support, a top Fed official said on Wednesday.
Speaking two weeks ahead of the U.S. central bank’s policy meeting when it is mostly expected to reduce its accommodation, Minneapolis Federal Reserve Bank President Narayana Kocherlakota repeated his long-held stance that, instead, the Fed “should be providing more stimulus to the economy, not less.”
The Fed has been buying $85 billion in U.S. Treasuries and mortgage-backed securities monthly since last September in an effort to reduce long-term borrowing costs, and has promised to continue the program until there is substantial improvement in the U.S. labor market outlook.
It has also said it will keep interest rates near zero until the unemployment rate falls at least to a threshold of 6.5 percent, from 7.4 percent in July, as long as inflation remains near a 2-percent target.
Kocherlakota, an outspoken dove, noted that the Fed’s policy-setting Federal Open Market Committee (FOMC) forecasts inflation to remain at or below 2 percent over the next few years, and that unemployment will decline only gradually.
“These forecasts imply that the Committee is failing to provide sufficient stimulus to the economy,” he said in prepared remarks at the University of Wisconsin.
The policymaker did not repeat - as he has in many previous speeches in arguing for easier policies - that the Fed should keep rates low until unemployment falls to 5.5 percent, and not the current threshold of 6.5 percent. Though he gave no hint he had backed down from that stance.