By David Bailey
BLOOMINGTON, Minn., Oct 4 (Reuters) - The Federal Reserve should do “whatever it takes” to drive down U.S. unemployment, even if this means courting concerns of another asset price bubble, or if inflation pops temporarily above two percent, a senior U.S. central banker said on Friday.
“The labor market remains disturbingly weak. The good news is that, with low inflation, the FOMC has considerable monetary policy capacity at its disposal with which to address this problem,” said Minneapolis Fed President Narayana Kocherlakota, referring to the policy-setting Federal Open Market Committee.
His comments closely followed a speech he gave last week.
“Doing whatever it takes will mean keeping a historically unusual amount of monetary stimulus in place - and possibly providing more stimulus,” he said in prepared remarks.
Kocherlakota added that this would be the case “even as” rising asset prices courted concerns of another bubble, or the medium term outlook for inflation rose above 2 percent, the Fed’s stated medium-term goal.
“It may not be easy to stick to this path. But I anticipate that the benefits of doing so, in terms of employment gains, will be significant,” he said.
The Fed stunned markets last month by opting to continue to keep buying bonds at an $85 billion monthly pace, despite widespread expectations it would start to scale back, signaling the end to an unprecedented phase of ultra-easy monetary policy.
Its caution has since appeared to have been vindicated by economic unease caused by political gridlock in Washington.
A stand-off between President Barack Obama’s Democrats and Republican Tea Party conservatives triggered a government shutdown and is courting a damaging debt default, if lawmakers fail to raise the U.S. debt ceiling by Oct. 17.
Officials, including from the Fed, warn this could potentially tip the United States back into a severe recession.
Kocherlakota did not refer to the battles in Washington in his prepared remarks. But he did stress the need to act decisively to speed up the pace of U.S. hiring.
“In 2013, the FOMC’s goal should be to return employment to its maximal level as rapidly as it can, while still keeping inflation close to, although possibly temporarily above, the target of 2 percent,” he said.