Fed’s Kocherlakota:’Unlikely’ Any More Ease Justified in Sept
–‘Nearly Impossible’ to Undo August’s 2013 Statement
–Still Plans to ‘Abide” By August FOMC Statement, in Near Term
By Denny Gulino
WASHINGTON (MNI) – Minneapolis Federal Reserve Bank President
Narayana Kocherlakota Tuesday stopped just short of hinting he is
preparing his second dissent for the two-day FOMC meeting later in the
month, saying it is “unlikely” any more accommodation will be justified
by then but that he is still ready to “abide” by the August decision.
Kocherlakota, speaking to the Carlson School of Management at the
University of Minnesota, stiffened his language of Aug. 30 in Bismarck,
N.D. to declare his opposition to August’s two-year pledge of near-zero
rates is going to continue.
“In a speech last week in Bismarck, I said that I believe that any
additional provision of accommodation in September or thereafter will
have to be judged on its own merits,” Kocherlakota said in his prepared
remarks. “Some readers or listeners may have found this statement to be
So, he continued, “Let me elaborate on what I meant then, and
continue to believe,” thereupon telegraphing his likely future vote,
unusual for any FOMC voter in advance of a meeting.
“I assess FOMC actions in light of the incoming data and the
Committee’s communicated objective of keeping inflation at 2 percent or
a bit under. With that in mind,” he said, “the data in August did not
justify the additional accommodation provided at that meeting. It is
unlikely that the data in September will warrant adding still more
Kocherlakota acknowledged that he’s not expecting enough
like-minded votes to overturn the conditional commitment into 2013, at
least for now, saying, “Unfortunately, the FOMC’s two-year conditional
committee will be nearly impossible to undo in the near term.”
And were it possible to overturn the decision in the “near term,”
that would not necessarily be a net positive, he said. “If the FOMC were
to backtrack rapidly on this provision, it would significantly undercut
the credibility of all forward guidance in the future.” And that’s the
reason, he said, “I plan to abide by the conditional commitment of
August 2011 in thinking about my own future decisions.”
Kocherlakota left the impression that he would favor the FOMC
backtracking, nevertheless, only not “rapidly” but obviously well before
2013 rolls around.
Up until August, Kocherlakota repeated, “the FOMC has succeeded,”
despite challenging circumstances. In language retained from his
Bismarck speech, Kocherlakota said that monetary policy must be
effectively communication and contain a credible response to
macroeconomic conditions, something he argued was lacking in August.
Kocherlakota’s August dissent, when combined with the other two,
were the most dissents at one meeting in nearly 20 years.
The rest of his prepared text was identical to that delivered in
** Market News International Washington Bureau: 202-371-2121 **