The is US faced with high unemployment and low inflation, so the Federal Reserve should be ramping up, not scaling back, its monetary stimulus, a top Fed official.
The US 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 HQ.
Mr. Kocherlakota’s extremely “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 rachet down it QE-Infinity stimulus.
Eleven of the 12 regional Fed presidents rotate in and out of year-long voting places on the panel every 2-3 yrs; of the regional chiefs, only the New York Fed chief has a permanent vote.
The Fed last month began its expected wind-down of it massive bond-buying program aimed at pushing down long-term borrowings costs and boosting hiring.
With unemployment at 7% down from its recent 10% high, and the labor market outlook improving, most Fed policymakers feel that easing monetary is appropriate.
Not so, Mr. Kocherlakota said. Inflation is running at about 50% of the Fed’s 2% 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% inflation,” he said.
The last time he had a vote on the policy-setting Federal Open Market Committee (FOMC), Kocherlakota voted with the Fed’s “hawks” in dissenting against what he saw then as overly stimulative Fed policy.
Mr. Kocherlakota underwent a conversion in October 2012, swinging from a position as one of the most hawkishly inclined Fed officials to his current, dovish position.
It was then that he proposed the Fed pledge to keep interest rates low until the unemployment rate falls to at least 5.5% aka full employment +.
Last month, the Fed said it would likely keep rates low until well past the time the unemployment rate hits 6.5%, but stopped short of lowering that threshold to the mark that Mr. Kocherlakota says would give the economy the boost it needs.