By Ann Saphir
MINNEAPOLIS, Sept 27 (Reuters) - The next chair of U.S.
Federal Reserve will need to resist the temptation to wind down
the central bank's monetary stimulus in the face of rising
criticism of the super-easy policies, a top Fed official said on
Friday.
"The main job is going to be to keep accommodation in place
for the next few years, even though there is going to be lots of
hue and cry to stop providing that accommodation," Narayana
Kocherlakota, president of the Minneapolis Federal Reserve Bank,
said in an interview with Reuters.
"We already hear that hue and cry. That person is going to
have to lead the committee to be strong against those kinds of
criticisms."
Ben Bernanke's term as Fed chairman ends in January, and
Vice Chair Janet Yellen has been tipped as his likely successor.
In past speeches and papers, Yellen has been a big proponent
of keeping Fed policies very easy in order to bring down high
unemployment more quickly, even at the cost of a little
inflation.
Other Fed officials have been less supportive, with some
warning that continuing to buy bonds at the current rate of $85
billion a month and keeping short-term interest rates near zero
could spark future inflation or lead to asset bubbles.
Kocherlakota says the risks of continued stimulus are small.
Any increase in inflation due to the Fed's continued
super-easy policies is likely to be temporary, and he said the
Fed can act quickly should inflation threaten to rise too far
above the central bank's 2 percent target.
The Fed's good track record in forecasting inflation over
the past 15 years makes Kocherlakota confident that the central
bank will see any signs of the economy overheating from too much
stimulus long before the situation gets out of hand.
"If our inflation outlook rises to 2.25 percent, or 2.5
percent as the committee has said, I think we can still pull
back from the brink even if inflation were to get that high," he
said. The Fed's policy-setting committee has said it will keep
rates low to bring down unemployment as long as inflation does
not threaten to breach 2.5 percent.
As for asset bubbles, Kocherlakota downplayed the role that
concern of bursting bubbles should play in monetary
policy-making.
If the Fed does see an asset bubble in the making, he said,
it's unclear whether the Fed should raise rates as a deterrent
to a bubble, or cut rates to head off the shock from an asset
price collapse.
In the face of that uncertainty, he said, the Fed should
shape monetary policy to address its dual mandate set by
Congress: keeping prices stable, and maximizing employment.
(Reporting by Ann Saphir; Editing by Leslie Adler)
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