April 2 Minneapolis Federal Reserve Bank
President Narayana Kocherlakota on Tuesday repeated his call for
more monetary policy easing, urging the U.S. central bank to
leave interest rates near zero until the unemployment rate falls
to 5.5 percent.
Doing so would give the economy a bigger boost than the
Fed's current promise to keep rates low until unemployment falls
to 6.5 percent, he argued in remarks prepared for delivery to
the Grand Forks/East Grand Forks Chamber of Commerce in Grand
Forks, North Dakota.
His prepared remarks were virtually identical to those he
delivered last week in Edina, Minnesota, and echo the thrust of
an argument he first made last October.
"(M)y outlook implies that monetary policy is currently not
accommodative enough," Kocherlakota said, forecasting
unemployment, now at 7.7 percent, to fall only slowly to 7
percent by the end of 2014, and for inflation to continue to lag
below the Fed's 2-percent target. "Monetary policy should be
Kocherlakota, who this year does not have a vote on the
Fed's policy-setting committee, is the only top Fed official to
publicly call for more policy accommodation this year.
The U.S. central bank in September redoubled efforts to
boost the jobs market by launching a new asset-purchase program
aimed at pushing down long-term rates and promising to keep
buying assets until the labor market outlook improves
In December it tied its low-rate policy explicitly to
progress on the jobs front, vowing to keep rates low until
unemployment falls to 6.5 percent, as long as inflation does not
threaten to rise above 2.5 percent.
Fed policymakers have said that both the low-rate vow and
the asset-purchase program have begun to help the recovery gain
Indeed, the economic outlook has strengthened in recent
months, and policy centrist Cleveland Fed President Sandra
Pianalto has joined some of the Fed's more hawkish policymakers
in suggesting the Fed begin to think about cutting back on its
Fed Chairman Ben Bernanke and his closest allies at the U.S.
central bank have pushed back, strongly defending the Fed's
continued accommodative policies.
But only Kocherlakota has continued to call for the Fed to
do even more.
The Fed, which is now buying a monthly $85 billion in
Treasuries and mortgage-backed securities, could deliver a
bigger boost to the economy by more precisely identifying the
conditions that would prompt it to pare or end its bond-buying
program, Kocherlakota said.
It could also make it clear that once its starts to remove
monetary accommodation, it would do so more slowly than
investors currently expect, he said.
While both of those approaches could deliver more policy
easing, Kocherlakota said, they would require complex changes to
the way the Fed communicates its intentions.
By contrast, vowing low rates until unemployment reaches the
more normal level of 5.5 percent would require changing only one
number in the Fed's statement, he said.
Although Kocherlakota's push for easier monetary policy has
many critics calling him an employment-focused dove, the
Minneapolis Fed chief was careful to show he is still tough on
A Fed commitment to low rates until unemployment falls to
5.5 percent would be unlikely to boost inflation beyond 2.25
percent, he said, citing the historical record of inflation and
the lack of upward wage pressures.
But should inflation threaten to rise above 2.5 percent, he
said, the Fed should "strongly consider an aggressive response."