Tags: Kocherlakota | Fed | Boost | Jobs

Kocherlakota: Fed Should Sharpen Message It Will Boost Jobs

Friday, 27 Sep 2013 02:36 PM

The U.S. Federal Reserve needs to speak more clearly and tell the world it will do "whatever it takes" to boost employment, and not send the message that a very slow drop in joblessness is satisfactory, a top Fed official said on Friday.

Minneapolis Fed President Narayana Kocherlakota told Reuters the U.S. central bank lacks a "comprehensive" strategy for communicating its longer-term policy intentions, leading to abrupt market reactions like the one last week after the Fed did not reduce its stimulus for the economy.

"If inflation is continuing to run well below our long run target (of 2 percent), I think we would still be doing whatever it takes at that point," Kocherlakota said in an interview in the board room of the Minneapolis Fed's headquarters.

The Fed would be "providing a lot of power because we're telling the public we're going to be accommodative" even if, for example, inflation rises a little above 2 percent.

Global stock markets shot higher September 18 after the Fed left its bond-buying program untouched at $85 billion per month, despite widespread expectations the pace would be reduced. Some observers, including some within the Fed, said the communication breakdown hurt the Fed's credibility.

Beyond the bond-buying, the Fed has also said it will keep interest rates near zero at least until unemployment falls to 6.5 percent, from 7.3 percent last month.

"What's going to happen at 6.5 percent? What will happen then to interest rates?" Kocherlakota said.

"If you articulate that you will do whatever it takes to get unemployment down, now we know we're going to be keeping interest rates low at that point."

© 2017 Thomson/Reuters. All rights reserved.

 
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The U.S. Federal Reserve needs to speak more clearly and tell the world it will do whatever it takes to boost employment, and not send the message that a very slow drop in joblessness is satisfactory, a top Fed official said on Friday.
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2013-36-27
Friday, 27 Sep 2013 02:36 PM
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