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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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza