WASHINGTON — In light of his expectations of an inflation rate below the U.S. central bank's target of 2% and a still "elevated" unemployment rate over the next two years, Minneapolis Federal Reserve President Narayana Kocherlakota estimated Thursday that the Fed's monetary policy, if anything, is currently "too tight."
"My own forecast, conditional on the FOMC's current monetary policy stance, is that inflation will run below the Fed's target of 2% over the next two years and the unemployment rate will remain elevated," Kocherlakota said in remarks prepared for delivery at a Public Town Hall Forum at the Minneapolis Federal Reserve.
"This forecast suggests that, if anything, monetary policy is currently too tight, not too easy," he said.
Presenting his economic outlook for 2013 and 2014, the central banker said that, assuming the Fed's monetary policy decisions over that period are "consistent with the forward guidance about asset purchases and the fed funds rate" as announced at the December FOMC meeting, his outlook for the next two years can be summarized as being an "ongoing modest recovery."
That translates into expectations of 2.5% output growth this year, picking up to 3% in 2014, too slow, however, to trigger a sharp unemployment decline, he said.
As a result, Kocherlakota expects the jobless rate to be around 7.5% in late 2013 and "around 7% in late 2014," continuing to "constrain wage growth."
"Consequently," Kocherlakota said, "inflation pressures will remain subdued, as I expect PCE inflation to be only 1.6% in 2013 and 1.9% in 2014."