The Minneapolis Fed has published a condensed transcript of Narayana Kocherlakota’s town hall meeting in La Crosse in September. I’ve boiled down most of the questions and answers:
- Who holds the Federal Reserve accountable?
- Kocherlakota said the U.S. President and the U.S. Senate, by appointing and confirming the chairman, hold the Fed accountable.
- Why are food prices going up?
- He said food prices are not rising any faster than normal, in fact they're rising slower than normal. “I get this question all the time,” he said. “And I think the right way to think about this is that it’s not really a question about prices; it’s really a question about wages. I think the reason people feel prices are going up by so much is because prices are going up by so much relative to their wages. Compensation growth in the United States has been very slow over the past five years and has been even slower over the past year. So if your compensation’s not growing very rapidly, even a normal price increase feels like it’s very sharp and very fast.”
- Does the Fed take into account those who are out of the labor force when it analyzes unemployment?
- He said, yes, it does, and the trend for unemployment tracks the trend for those who are without a job but marginally attached to the workforce. A broader measure of unemployment is slightly worse historically than the official measure of unemployment, he said, but both measures have followed the same trajectory since 2007. “…we do look at this, but even if you use these broader measures, it’s telling us similar stories qualitatively.”
- What is the unemployment rate we’re trying to get back to?
- He said the unemployment rate from before the recession of below 5 percent nationally is not the goal, but improvement is still necessary. “So if we go back to the beginning of the recession, I just talked about it, in late ’07, those estimates were somewhere between 4.5 percent and 5 percent. Now those estimates have moved upward to somewhere between 5.2 percert and 6 percent, as I described. So we have adjusted our measures of the long-run unemployment rate upward, indicating that we do think there’s been some permanent damage to the labor market associated with the recession we just went through.”
- Is it a good idea to keep interest rates artificially low?
- Kocherlakota disagreed with the premise of the question, and used his favorite metaphor: Like a winter coat that’s necessary when it’s cold out, low interest rates are necessary until unemployment falls more or inflation rises. “So it really depends on what the conditions are, what kind of clothes you need to put on to keep yourself warm. The parka in my example is the interest rate. It really depends on what the conditions are, not the time of year or how long it’s been and all those things. So I think the issue of artificial ... of course not, you should not keep interest rates artificially low. Should we be keeping interest rates low in order to achieve our objectives? Yes. Have we made them low enough? No.”
- Why are you punishing elderly citizens who primarily use CDs for savings?
- He basically acknowledged that the question was accurate, and argued that it’s better for everyone overall if interest rates stay low, even if they do affect returns on CDs. “Yes, monetary policy is a tool that is designed to achieve these macroeconomic objectives I have described, low inflation and maximum employment. And it’s definitely a tool that has distributional consequences. So that means there are going to be distributional consequences.”
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