Tags: KOCHERLAKOTA | FED | FEDERAL RESERVE | ECONOMY | EUROPE | EURO ZONE | DEBT

Fed's Kocherlakota: Economy Can Sway Low Rate Vow

Thursday, 13 May 2010 02:34 PM

A top Federal Reserve official said on Thursday the U.S. central bank's promise to keep rates ultra-low for an extended period could change if economic conditions shift.

"Readers of the (Federal Open Market Committee) statement should pay very careful attention to its explicit conditionality," Minneapolis Federal Reserve President Narayana Kocherlakota said in comments prepared for delivery.

"The statement says that the committee will raise interest rates if economic conditions change appropriately — whether that's in three weeks, three months, or three years," he said.

Kocherlakota, who is not a voter on the Fed's policy-setting panel this year, said that if he had been one, he would have voted in favor of the Fed's April statement.

However, he said he is worried that the Fed's vastly expanded balance sheet could cause inflation. The Fed added more than $1 trillion in extra reserves to the financial system as it bought assets to buoy the economy through one of the most painful recessions in decades.

"If we want to normalize our balance sheet sometime in the next two decades, we will need to sell some of our (mortgage-backed securities) holdings," he said.

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A top Federal Reserve official said on Thursday the U.S. central bank's promise to keep rates ultra-low for an extended period could change if economic conditions shift. Readers of the (Federal Open Market Committee) statement should pay very careful attention to its...
KOCHERLAKOTA,FED,FEDERAL RESERVE,ECONOMY,EUROPE,EURO ZONE,DEBT,EURO,CONTAGION,AUSTERITY
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2010-34-13
Thursday, 13 May 2010 02:34 PM
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