Minneapolis Fed President and super-dove Kocherlakota spoke in an exclusive interview with the FT.
Kocherlakota is a vote this year and is criticizing the lack of progress on the Fed’s inflation goal:
“We’re running the risk of being content with inflation running consistently below our target. That’s inappropriate,” said Narayana Kocherlakota, who votes on Fed monetary policy this year, in an interview with the Financial Times. “Right now we’re sitting with an outlook for inflation that even by 2016 . . . is not getting back to 2 per cent.”
Kocherlakota also calls for more clarity on guidance about what will happen when the 6.5% unemployment threshold is reached. The current statement says the Fed will keep rates low until ‘well after’ 6.5% unemployment but he says that’s not clear.
“We would say we intend to keep the Fed funds rate extraordinarily low in that interval between 6.5 and 5.5 per cent as long as the medium-term outlook for inflation stays sufficiently close to 2 per cent,” he said. “I definitely feel it is important to be numerical about it. Words are always subject, I think, to multiple interpretations.”
For other alternatives to stimulate inflation, he says cutting interest on excess reserves below zero would be a powerful signal on the seriousness of its 2% inflation target. He also argues that the participation rate is skewing the labor market to seem more healthier than it is. Parts of his district are among the strongest jobs data in the country and he’s “not seeing evidence of significant wage pressures.”