Fed’s Kocherlakota Wants More Stimulus Based on Goals

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.

via Reuters

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