Tags: fed | us | economy | Kocherlakota | Fed | Easy-Money | Policy

Kocherlakota: Fed's Easy-Money Policy 'Appropriate'

Thursday, 03 Mar 2011 02:03 PM

The U.S. Federal Reserve Bank's super-easy monetary policy is "appropriate" because stubbornly high U.S. unemployment is more likely caused by weak demand than structural economic shifts, a top Fed official said on Thursday.

The debate over root causes of joblessness is critical for central bank policy makers, Minneapolis Fed President Narayana Kocherlakota said in remarks prepared for delivery at St. Cloud State University. The U.S. unemployment rate registered 9 percent in January and is expected to have edged up to 9.1 percent last month.

Easy monetary policy can only hope to bring down joblessness if the causes are not structural but related to distortions in demand stemming from a shock, he said.

Some Fed policymakers, including Dallas Fed President Richard Fisher, have argued that employers are not hiring largely because of uncertainty over tax and regulatory policies.

Kocherlakota said such effects are secondary, and that high unemployment is mostly being driven by lack of demand.

"What I find is 'insufficient demand,' first — and then taxes/regulation," said Kocherlakota, who is a voter this year on the Fed's policy-setting panel. "It is appropriate for monetary policy to be highly accommodative.

Kocherlakota's remarks come as stronger U.S. economic data are leading some policymakers, including St. Louis Fed President James Bullard, to advocate considering an early end to the Fed's $600 billion bond-buying program, slated to run through June.

Bullard, who happens to be an alumnus of St. Cloud State University, is not a voting member of the Fed's policy-setting committee. Fed Chairman Ben Bernanke on Wednesday said that a failure to bring down unemployment could imperil the recovery.

Economic models suggest that that the "natural" U.S. unemployment rate — the level at which undesirable wage and inflation pressures can build — ranges from 5.9 percent to 8.9 percent, Kocherlakota said. But such a large range is not definitive.

Inflation data and business surveys suggest that the natural rate of unemployment is low relative to the real jobless rate, he said, underscoring the need for current accommodative monetary policy.

"However, the Federal Open Market Committee will need to remain vigilant to the possibility of changes in the gap between the unemployment rate and the natural unemployment rate," he said, adding that he will be paying close attention to core inflation measures.

© 2017 Thomson/Reuters. All rights reserved.

1Like our page
2Share
StreetTalk
The U.S. Federal Reserve Bank's super-easy monetary policy is appropriate because stubbornly high U.S. unemployment is more likely caused by weak demand than structural economic shifts, a top Fed official said on Thursday. The debate over root causes of joblessness is...
fed,us,economy,Kocherlakota,Fed,Easy-Money,Policy,Appropriate
375
2011-03-03
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved