Tags: Federal Reserve | Kocherlakota | Stimulus | Job

Fed's Kocherlakota Calls for More Stimulus to Aid Job Market

Thursday, 09 January 2014 09:05 PM

Faced with high U.S. unemployment and stubbornly low inflation, the Federal Reserve should be ramping up, not scaling back, its monetary stimulus, a top Fed official said.

The U.S. central bank, charged by Congress to aim for an economy that has enough jobs and also stable prices, "could do better with respect to both of its congressionally mandated objectives by adopting a more accommodative monetary policy stance," Narayana Kocherlakota, president of the Minneapolis Federal Reserve Bank, said in remarks prepared for delivery at the regional bank's headquarters.

Kocherlakota's stridently dovish remarks suggest that when he gets his turn to vote on the Fed's policy-setting panel this month, he may use it to dissent if the Fed continues to dial down stimulus. Eleven of the 12 regional Fed presidents rotate in and out of year-long voting spots on the panel every two or three years; of the regional chiefs, only the New York Fed chief gets a permanent vote.

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The Fed last month began what is expected to be a measured wind-down of a massive bond-buying program aimed at pushing down long-term borrowings costs and boosting hiring.

With unemployment at 7 percent, down from its recent 10-percent peak, and the labor market outlook improving, most Fed policymakers felt that easing up on the monetary policy gas was appropriate.

Not so, Kocherlakota said.

Inflation is running at about half of the Fed's 2 percent goal and unemployment has fallen "disturbingly slowly," he told his audience.

"By easing monetary policy relative to its current stance, the (Fed) could facilitate a more rapid fall in unemployment and more rapid return to 2 percent inflation," he said.

The last time he had a vote on the policy-setting Federal Open Market Committee, Kocherlakota voted with the Fed's hawkish wing in dissenting against what he saw then as overly stimulative Fed policy.

Kocherlakota underwent a conversion of sorts in October 2012, swinging from a position as one of the most hawkishly inclined Fed officials to his current, dovish stance.

It was then that he first proposed the Fed pledge to keep rates low until the unemployment rate falls to at least 5.5 percent. Last month, the Fed said it would likely keep rates low until well past the time the unemployment rate hits 6.5 percent, but stopped short of lowering that threshold to the level that Kocherlakota says would give the economy a bigger boost.

Normally the Fed has 12 voters on monetary policy, but because of recent and expected departures at the Fed Board of Governors, it only has 10 currently.

That number would drop again next month if Bernanke resigns from the board, as expected, when his term as chairman expires.

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Minneapolis Fed President Narayana Kocherlakotasaid the central bank could sooner achieve its goals of full employment and 2 percent inflation by stepping up stimulus.
Federal Reserve,Kocherlakota,Stimulus,Job
Thursday, 09 January 2014 09:05 PM
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