The Minneapolis Fed chief said Tuesday that the central bank should keep interest rates down until national unemployment falls to 5.5 percent, the latest in a series of pronouncements that have lately made Narayana Kocherlakota the most outspoken inflation dove at the Federal Reserve.
"Some might be concerned that this move would give rise to undue inflationary pressures," he told the Financial Planners Association of Minnesota in a prepared speech over breakfast at the Golden Valley Country Club. "I see that possibility as unlikely -- and, even if I'm wrong in my assessment, the committee's forward guidance provides tight inflation safeguards."
The Fed is already buying roughly $85 billion in mostly government-backed assets each month to keep interest rates low, hoping to encourage spending and boost hiring across the nation. The central bank's policymaking Federal Open Market Committee said in December that it would continue to hold down rates either until unemployment falls below 6.5 percent or the inflation outlook rises above 2.5 percent.
December's announcement was the first time the Fed announced explicit inflation and unemployment thresholds guiding monetary policy, something Chicago Fed President Charlie Evans had been advocating since 2011. Kocherlakota, president of the Federal Reserve Bank of Minneapolis, started calling for the same thing in 2012.
The Fed sees the way it communicates -- its "forward guidance" -- as a form of stimulus. If the public believes interest rates will be low until a numerical threshold is met, that should stimulate economic growth.
While not currently a voting member of the Federal Open Market Committee, Kocherlakota participates in its meetings. Once considered an interest-rate hawk, Kocherlakota was convinced in 2012 that inflation is not an imminent threat. Since then he's become a vocal proponent of easier monetary policy.
His views have evolved and are evolving, he said Tuesday, based on the Fed's dual mandate of holding down inflation and pushing for maximum employment.
"You want to call me dovish or hawkish," he said. "I'm just a person who's trying to set policy so as to achieve the goals set by Congress."