Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, is speaking today at the annual Helena branch Board of Directors meeting and community luncheon in Great Falls, Montana. While this might be just another luncheon, Mr. Kocherlakota has set the terms under which he sees the easy monetary continuing. More specifically, he sees the policies of today lasting for perhaps four more years… or even longer.
His notes say, “As long as the FOMC satisfies its price stability mandate, it should keep the fed funds rate extraordinarily low until the unemployment rate has fallen below 5.5 percent.” And he also said that the FOMC will not raise the fed funds rate unless the medium-term outlook for the inflation rate exceeds a threshold value of 2.25% or unless the unemployment rate falls below a threshold value of 5.5 percent.
He is proposing a liftoff plan which would contain a specific definition of the phrase “a considerable time after the economic recovery strengthens” rather than just for a “considerable period.” This was then put as a situation which may not take place for four years or more. He also noted that his idea is a collective outlook for inflation that has been determined by the Committee as a whole as it currently does formulate such an outlook and communicates that outlook through its statement. His opinion is that a liftoff and collective policy would be clearer and more accountable.
QE turned into QE2 and QE2 recently became QE3. We may now be looking at QE-infinity.
Narayana Kocherlakota became the 12th president of the Federal Reserve Bank of Minneapolis on Oct. 8, 2009.
JON C. OGG