The president of the Federal Reserve Bank of Minneapolis called on the central bank to keep interest rates near zero until 2017, arguing that further monetary stimulus would create more jobs faster.
Narayana Kocherlakota also suggested that he would be open to lowering the Fed’s current target for short-term interest rates, which has been set at zero to one-quarter of a percentage point since 2008.
Pointing out that job growth was faster in 2014, when the Fed was buying government bonds in massive amounts, Kocherlakota said that “the lesson of 2014 is clear: We can do better.”
“Given 2014, and given how low inflation is expected to be over the next few years, I see no reason why the [Fed’s monetary policy committee] should not aim to facilitate continued improvement in labor market conditions,” Kocherlakota said in a speech prepared for delivery in Mankato, Minn.
Kocherlakota is known as one of the members of the central bank most worried about unemployment and least worried about the risks of too-loose money.
His views appear to be out of step with those of the Fed’s leadership. After the committee declined to raise interest rates at its September monetary policy meeting, Chairwoman Janet Yellen reasserted that it is likely that it will do so later this year.
In recent statements, the Fed has stated that it is waiting for further job growth and signs that inflation is rising to its 2 percent target.
Kocherlakota on Thursday downplayed the signs that inflation is going to rise to 2 percent, noting that core inflation has been running at 1.3 percent annually.
The lack of inflation, he said, suggests that the Fed could have “a free lunch. There would be little or no inflationary cost” to keeping monetary policy loose.
In that scenario, he argued, job growth could grow closer to the 260,000 pace that held in 2014. This year, it has slowed to closer to 200,000.
