November 12, 2013, 1:28 PM
Fed’s Kocherlakota: Expectations of Fed Taper Are ‘Puzzling’
By Michael S. Derby
Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said Tuesday market speculation about a reduction in the pace of the Fed’s bond-buying stimulus program is “puzzling” in light of the current economic challenges.
In a St. Paul, Minn., speech, the central banker repeated his call for the Fed to provide substantial amounts of stimulus to the economy in a bid to drive down still-high levels of unemployment. He said the Fed must do “whatever it takes” and that “will mean keeping a historically unusual amount of monetary stimulus in place–and possibly providing more stimulus.”
Mr. Kocherlakota, who doesn’t currently have a voting slot on the monetary-policy-setting Federal Open Market Committee, is one of the central bank’s strongest advocates of an aggressive approach to helping the economy. He supports the Fed pressing forward with its $85-billion-a-month bond-buying program, and he wants the central bank to lower the jobless threshold it put in place to offer guidance about the timing of future short-term interest-rate hikes.
The official spoke in the wake of last Friday’s release of better-than-expected October jobs report. That report threw the outlook for the Fed’s $85-billion-a-month bond-buying policy in flux. Many forecasters had begun to expect the Fed wouldn’t trim asset buying until some time in spring.
Now some observers believe the Fed may be able to slow its easy money efforts at its meeting next month.
Mr. Kocherlakota is vexed by this change in expectations.
“Reducing the flow of purchases in the near term would be a drag on the already slow rate of progress of the economy toward the Committee’s goals” of better job growth, the official said. “From the perspective of a goal-oriented approach, the timing of this conversation seems puzzling.”
Mr. Kocherlakota thinks the Fed can better communicate what it wants out of policy by stating its goals more explicitly. He thinks that would reduce some of the volatility markets have seen recently as traders and investors have tried to parse the monetary policy outlook.
In his prepared remarks, the central banker said when it comes to economic and job market weakness, “there is considerable monetary policy capacity” to deal with the problems at hand. Low inflation, he said, gives the Fed room to act.
As the central bank moves forward, Mr. Kocherlakota said the Fed must be willing to “use any of its congressionally authorized tools to achieve the goal of higher employment, no matter how unconventional those tools might be.”
In a St. Paul, Minn., speech, the central banker repeated his call for the Fed to provide substantial amounts of stimulus to the economy in a bid to drive down still-high levels of unemployment. He said the Fed must do “whatever it takes” and that “will mean keeping a historically unusual amount of monetary stimulus in place–and possibly providing more stimulus.”
Mr. Kocherlakota, who doesn’t currently have a voting slot on the monetary-policy-setting Federal Open Market Committee, is one of the central bank’s strongest advocates of an aggressive approach to helping the economy. He supports the Fed pressing forward with its $85-billion-a-month bond-buying program, and he wants the central bank to lower the jobless threshold it put in place to offer guidance about the timing of future short-term interest-rate hikes.
The official spoke in the wake of last Friday’s release of better-than-expected October jobs report. That report threw the outlook for the Fed’s $85-billion-a-month bond-buying policy in flux. Many forecasters had begun to expect the Fed wouldn’t trim asset buying until some time in spring.
Now some observers believe the Fed may be able to slow its easy money efforts at its meeting next month.
Mr. Kocherlakota is vexed by this change in expectations.
“Reducing the flow of purchases in the near term would be a drag on the already slow rate of progress of the economy toward the Committee’s goals” of better job growth, the official said. “From the perspective of a goal-oriented approach, the timing of this conversation seems puzzling.”
Mr. Kocherlakota thinks the Fed can better communicate what it wants out of policy by stating its goals more explicitly. He thinks that would reduce some of the volatility markets have seen recently as traders and investors have tried to parse the monetary policy outlook.
In his prepared remarks, the central banker said when it comes to economic and job market weakness, “there is considerable monetary policy capacity” to deal with the problems at hand. Low inflation, he said, gives the Fed room to act.
As the central bank moves forward, Mr. Kocherlakota said the Fed must be willing to “use any of its congressionally authorized tools to achieve the goal of higher employment, no matter how unconventional those tools might be.”
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