More Mixed Fed Messages in Kocherlakota Speech

Narayana Kocherlakota, who is President of the Minneapolis Fed, released comments today from a speech discussing what he thinks is an appropriate action. He spoke about asset purchases and Fed Funds.

On asset purchases, Kocherlakota thinks that the committee should continue to buy assets at least until the unemployment rate has fallen below 7 percent. The difference is that this is as long as the medium-term outlook for the inflation rate remains below 2.5 percent and if longer-term inflation expectations remain well anchored.

Kocherlakota thinks that the Federal Funds rate should be kept in its current “extraordinarily low level” at least until the unemployment rate has fallen below 5.5 percent. He said that should be as long as the medium-term outlook for the inflation rate remains below 2.5 percent and longer-term inflation expectations remain well anchored.

Kocherlakota was quoted saying, “I emphasize that recent Federal Open Market Committee communications are consistent with an appropriately accommodative monetary policy strategy. However, I argue that the Committee’s communications have provided insufficient detail about how its policy strategy will play out when the recovery is more advanced. I describe how the Committee can reduce residual policy uncertainty, and so better achieve its goals, by providing this missing clarity in future communications.”

Kocherlakota went on to say that he is describing thresholds rather than triggers in both cases. His full comments are here.