Minneapolis Fed chief explains dissenting vote

  • Article by: JENNIFER BJORHUS , Star Tribune
  • Updated: August 12, 2011 - 12:25 PM

In video-taped statement, Kocherlakota said he disagreed with length of time interest rates will be kept low.

Narayana Kocherlakota, head of the Federal Reserve Bank of Minneapolis, took the unusual step Friday of posting a video-taped statement explaining why he dissented from the recent Federal Open Market Committee decision to hold interest rates near zero through at least mid-2013.

The decision passed 7-3 Tuesday. Kocherlakota was one of three members of the 10-member FOMC panel who dissented. Such division on the board itself is unusual and has prompted speculation that Federal Reserve Chairman Ben Bernanke may not have the full support of the panel in future decisions. The last time there were three dissents on an FOMC statement was in November 1992, according to the Federal Reserve Board.

In his statement Friday, posted prominently on the Web site of the Federal Reserve Bank of Minneapolis, Kocherlakota said he dissented because the decision may keep rates too low for too long, or in Fedspeak, is too ''accommodative.'' He pointed to signs of inflation and the fact that unemployment, while high, has fallen since November.

"I do not believe that providing more accommodation -- easing monetary policy -- is the appropriate response to these changes in the economy," Kocherlakota said.

Previously, the Fed has said it would keep the federal funds rate at near zero for "an extended period," which Kocherlakota said was generally interpreted to mean between three and six months.

Kocherlakota said he issued the statement because he believes that "transparency is an essential part of effective policy formation."

Also dissenting were Richard W. Fisher, head of the Federal Reserve Bank of Dallas, and Charles I. Plosser, head of the Federal Reserve Bank of Philadelphia. Neither could immediately be reached for comment. Fisher will address the dissent in a speech Wednesday at a community forum in Texas, a spokesman said. A spokeswoman for Plosser said he would not be issuing a statement.

Jennifer Bjorhus • 612-673-4683

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