Fed's Kocherlakota backs goal-based policy, wants more stimulus
Reuters
Published Jan 13, 2015 06:13PM ET
Fed's Kocherlakota backs goal-based policy, wants more stimulus
By Jonathan Spicer
NEW YORK (Reuters) - Proposed U.S. legislation that would force the Federal Reserve to adopt a rules-based approach to policy is flawed, a top Federal Reserve official said on Tuesday, arguing that a goal-oriented approach is better and would suggest more stimulus is necessary.
Narayana Kocherlakota, the dovish president of the Minneapolis Fed, repeated his long-held argument that the U.S. central bank is planning a too-hasty retreat this year from near-zero interest rates.
"Deciding not to reduce stimulus in 2015 would be consistent with a goal-oriented approach to the employment mandate," Kocherlakota said in prepared remarks to an event hosted by MNI. Indeed, he added, "increases in stimulus would push upward on employment."
The legislation proposed by conservatives in Congress would require the Fed to adopt a rule to guide its interest rate decisions, and also impose stricter congressional oversight of the central bank. Fed officials have warned against such restrictions on an independent central bank.
Kocherlakota said such a "reference policy rule" would judge the Fed based on what choices it was making rather than on how the economy is performing relative to inflation and employment goals. He said it was "flawed" in part because it would not allow for the natural rate of interest to vary over time.
"The job market is, finally, on a highly desirable upward trajectory," he said. "We are more likely to continue on that welcome trajectory if the (Federal Open Market Committee) does not tighten monetary policy in 2015."
Kocherlakota is one of only two Fed officials who favor delaying raising interest rates until 2016. He does not vote on Fed policy this year, and has announced plans to resign by early next year.
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Written By: Reuters
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