Fed dissenter says policy action was a mistake

Published on NewsOK Modified: March 21, 2014 at 9:57 am •  Published: March 21, 2014
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WASHINGTON (AP) — A Federal Reserve official who dissented from this week's policy decision said Friday that the Fed should have said it planned to keep a key interest rate at a record low until unemployment falls below 5.5 percent.

The Fed's policy statement no longer cites a specific unemployment rate that might lead it eventually to raise short-term rates. The Fed instead says it will monitor a range of information before approving any rate increase.

Narayana Kocherlakota, president of the Fed's Minneapolis bank, said this shift, which the Fed approved 8-1, will hurt the economy.

"The new guidance fosters policy uncertainty and thereby suppresses economic activity," Kocherlakota said in a statement explaining his dissent.

Kocherlakota said that lowering the threshold for considering a rate hike from 6.5 percent unemployment to 5.5 percent would have enhanced the Fed's commitment to low rates until inflation nears its 2 percent target. Inflation is now running around 1 percent, and the unemployment rate is 6.7 percent.

Kocherlakota said a better approach would have been a statement saying the Fed intends to keep rates at record lows until unemployment has fallen below 5.5 percent — as long as expected inflation was below 2.25 percent and any "possible risks to financial stability remain well-contained."

On Wednesday, the Fed held its first policy meeting under its new chair, Janet Yellen. Afterward, it said it would weigh a range of economic measures in deciding when to begin raising its key target for short-term rates. The Fed has held its benchmark rate at a record low near zero since December 2008.