Minneapolis Fed Head Kocherlakota Explains His Dissenting Vote
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Minneapolis Federal Reserve President Narayana Kocherlakota took the unusual step Friday to publicly explain his decision to dissent in the recent FOMC decision to keep the Federal Fund rate "exceptionally low" through at least mid-2013. He was one of three dissenters. Richard Fisher and Charles Plosser were the other two.
Kocherlakota said the statement from the FOMC was designed to let the public know the Fed Funds rate is likely to stay between 0 and 25 basis points over the next two years, not just over the next three to six months, generally the interpreted meaning of "extended period."
He said this new language was intended to provide more monetary accommodation than before.
Kocherlakota said he dissented, "because the evolution of macroeconomic data did not reflect a need to make monetary policy more accommodative than in November 2010. In particular, personal consumption expenditure (PCE) inflation rose notably in the first half of 2011, whether or not one includes food and energy. At the same time, while unemployment does remain disturbingly high, it has fallen since November."
He said the level of accommodation provided by the FOMC in November 2010 (QE2) was "well calibrated for the prevailing economic conditions." Providing more accommodation is not the appropriate response to these changes in the economy, he said.
The question now... Will Kocherlakota soon be eating crow or will Bernanke continue to press ahead with additional easing measure (QE3) that will spiral inflation out of control? August 26th is the Jackson Hole meeting, which could bring QE3.
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Kocherlakota said the statement from the FOMC was designed to let the public know the Fed Funds rate is likely to stay between 0 and 25 basis points over the next two years, not just over the next three to six months, generally the interpreted meaning of "extended period."
He said this new language was intended to provide more monetary accommodation than before.
Kocherlakota said he dissented, "because the evolution of macroeconomic data did not reflect a need to make monetary policy more accommodative than in November 2010. In particular, personal consumption expenditure (PCE) inflation rose notably in the first half of 2011, whether or not one includes food and energy. At the same time, while unemployment does remain disturbingly high, it has fallen since November."
He said the level of accommodation provided by the FOMC in November 2010 (QE2) was "well calibrated for the prevailing economic conditions." Providing more accommodation is not the appropriate response to these changes in the economy, he said.
The question now... Will Kocherlakota soon be eating crow or will Bernanke continue to press ahead with additional easing measure (QE3) that will spiral inflation out of control? August 26th is the Jackson Hole meeting, which could bring QE3.
VIDEO
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