HOUGHTON, Michigan (Reuters) - Minneapolis Federal Reserve Bank President Narayana Kocherlakota, one of the most dovish policymakers at the U.S. central bank, on Thursday made his most impassioned plea for more monetary stimulus in the face of high joblessness.
But he said that more stimulus does not necessarily mean adding to the Fed’s current program of buying $85 billion a month in long-term bonds to push down rates.
It could, for instance, mean the Fed lowers the interest rate, currently a quarter of a percentage point, that it pays to banks for keeping their excess reserves at the Fed.
Neither step, he noted, would have a large economic effect in and of itself. What’s important, he said, is that the Fed is clearer about its commitment to keeping rates low, and doing whatever else it takes, until the jobless rate falls more rapidly.
Observers have taken Kocherlakota’s call for more stimulus to mean that he supports more asset purchases, rather than the reduction, or taper, that the Fed currently is considering. Kocherlakota said that is not so.
“I don’t think what I said today says something specifically about tapering... The Fed has many tools. You could imagine a world where the Fed cuts back on one tool, and starts to use more of another,” he said.
“The flow of purchases is not the big deficiency right now in our statement. The big deficiency is the clear gap between our medium-term outlook, and our long-run objectives, and that means people have to guess about what we are going to be doing at every meeting down the road.”
Reporting by Ann Saphir; Editing by Chizu Nomiyama