| GOLDEN VALLEY, Minn.
GOLDEN VALLEY, Minn. Jan 15 The U.S. central
bank should move to put the nation on a faster track toward more
desirable levels of inflation and employment by easing monetary
policy further, a top Federal Reserve official said on Tuesday.
The Fed, which just last month vowed to keep rates near zero
until the unemployment rate reaches 6.5 percent, should extend
that pledge until the jobless rate hits 5.5 percent, Minneapolis
Federal Reserve Bank President Narayana Kocherlakota said in
remarks prepared for delivery to the Financial Planning
Association of Minnesota.
Setting a lower threshold for the Fed to even consider
raising interest rates would boost demand and push upward on
both inflation and employment, he argued. The Federal Open
Market Committee, the group of Fed officials who set U.S.
monetary policy, next meets on Jan. 29-30.
"My outlook for both inflation and unemployment means that
the FOMC should provide more monetary accommodation,"
Kocherlakota said. "It would be appropriate for the committee to
increase the level of monetary accommodation by lowering the
unemployment rate threshold to 5.5 percent."
Absent such additional stimulus, unemployment, now at 7.8
percent, will not fall below 7 percent for at least two years,
he forecast, and inflation will be below the Fed's 2-percent
goal at 1.6 percent this year and 1.9 percent next year. The
economy overall will grow about 2.5 percent this year, and 3
percent in 2014, he predicted.
In calling for still more policy easing just one month after
the Fed took the unprecedented step of tying its low-rate policy
to a specific level of unemployment, Kocherlakota's speech marks
him as perhaps the Fed's most dovish policymaker.
Even Chicago Fed President Charles Evans, the central bank's
first and most vocal advocate for more easing using a
threshold-based policy, has signaled he is comfortable with
current policy, which also includes a bond-buying program of $85
billion a month aimed at lowering borrowing costs and boosting
On the other end of the policy spectrum, Kansas City Fed
President Esther George has criticized the Fed's recent moves,
saying they could lay the groundwork for unwanted inflation.
But Kocherlakota, who next votes on the Fed's policy-setting
panel in 2014, argued that keeping rates low until unemployment
falls to 5.5 percent is unlikely to push inflation very high at
As proof, he said, one need look no farther than the Fed's
own forecasts for long-run unemployment, which show that Fed
officials see an unemployment rate of 5.2 percent to 6 percent
as consistent with 2-percent inflation.
"These estimates suggest that, as long as the unemployment
rate remains above 5.5 percent, wage pressures will not be
sufficiently strong to generate a medium-term inflation outlook
much in excess of 2 percent," he said.
Because the Fed has already said it will abandon its
low-rate policy if inflation threatens to rise above 2.5
percent, "even if I am wrong in my assessment, the committee's
forward guidance provides tight inflation safeguards," he said.