The President of the Federal Reserve Bank of Minneapolis, Narayana Kocherlakota, explained the reasoning behind his dissenting vote at this week’s Federal Open Market Committee (FOMC) meeting.
Kocherlakota – along with regional presidents Richard Fisher and Charles Plosser – dissented from the Bernanke-led FOMC with respect to changing the language for the length of keeping the Fed Funds rate near zero from “extended period” to mid-2013.
This marked the first time since 1992 that three FOMC members casted dissenting votes at the same meeting, and raised questions over the cohesion of the Fed at a time of significant economic uncertainty.
In an article published this morning, Kocherlakota wrote that the new language “is designed to let the public know that the fed funds rate is likely to stay between 0 and 25 basis points over the next two years, not just over the next three to six months. Hence, the new language is intended to provide more monetary accommodation than before.”
“I dissented from this change in language because the evolution of macroeconomic data did not reflect a need to make monetary policy more accommodative than in November 2010. In particular, personal consumption expenditure (PCE) inflation rose notably in the first half of 2011, whether or not one includes food and energy. At the same time, while unemployment does remain disturbingly high, it has fallen since November.”
“I can summarize my reasoning as follows. I believe that in November, the Committee judiciously chose a level of accommodation that was well calibrated for the prevailing economic conditions. Since November, inflation has risen and unemployment has fallen. I do not believe that providing more accommodation—easing monetary policy—is the appropriate response to these changes in the economy.”