With inflation still below 2% and there for probably "a few years" further, Federal Reserve Bank of Minneapolis President Narayana Kocherlakota Tuesday repeated his call for the Fed to keep rates near zero, with no increases this year.
Since monetary policy works with about a two-year lag, raising rates this year "would only further retard the pace of the slow recovery in inflation," Kocherlakota told the Minnesota Bankers Association, according to prepared text released by the Fed.
Raising rates this year, he said "would also increase the risk of a loss of credibility, in the sense that the public could increasingly perceive the FOMC as aiming at a lower inflation target."
Kocherlakota also said employment is more likely to continue its "upward trajectory" if rates are held this year.
Saying, "the FOMC underperformed in the past three years with respect to the price stability mandate and the employment mandate," Kocherlakota criticized the FOMC's mid-2013 discussion of "the eventual elimination of its asset purchase program." He noted, "These communications, and the follow-up actions, served as a tightening of monetary policy. Accordingly, they were associated with sharp increases in market interest rates and sharp reductions in the rate of home mortgage refinancing."
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