CHICAGO May 17 The Federal Reserve has not done
enough to lower U.S. borrowing costs to boost economic growth, a
top Fed official said on Friday, citing his outlook for overly
low inflation and overly high unemployment over the next two to
Since the Great Recession, workers and businesses are
seeking safer assets, even as the supply of assets perceived as
safe dwindles, Minneapolis Fed President Narayana Kocherlakota
told a group convened by the University of Chicago Booth School
"The increase in asset demand, combined with the fall in
asset supply, implies that households and firms spend less at
any level of the real interest rate-that is, the interest rate
net of anticipated inflation," he said in prepared remarks.
The Fed has kept short-term interest rates near zero since
December 2008, and has bought well over $2 trillion in
Treasuries and housing-backed bonds to bring down long-term
interest rates and stimulate spending and hiring.
Still, Kocherlakota said, "The (Fed) has still not lowered
the real interest rate sufficiently in light of the changes in
asset demand and asset supply that I've described."
Kocherlakota is arguably the most dovish of the Fed's 19
policymakers since his sudden conversion last October, when he
called for the central bank to pledge low interest rates until
unemployment falls to at least 5.5 percent, a full percentage
point lower than the threshold the Fed adopted late last year.
While he did not repeat that proposal in Friday's remarks,
Kocherlakota did push back against those, including some of his
colleagues at the Fed, who have warned that prolonged low
interest rates lead to financial system disruption.
Low rates do lead to more volatility in asset prices, he
said. But tighter monetary policy should only be used to rein in
risks to financial stability if the benefits are clear.
And they are anything but, he argued.
"The gains from tightening related to improving financial
stability are both speculative and slight," he said. "In
contrast, the losses from tightening, in terms of pushing
employment and prices even further below the Federal Reserve's
goals, are both tangible and significant."
Kocherlakota is to participate in a panel discussion Friday
afternoon with Sveriges Riksbank Governor Stefan Ingves on the
future of financial regulation and monetary policy.