Minneapolis Federal Reserve Bank President Narayana Kocherlakota renewed his call for a "more accommodative" monetary policy Wednesday.

Kocherlakota, repeating remarks made Tuesday in Golden Valley, Minnesota, suggested that the Fed's policymaking Federal Open Market Committee lower its unemployment threshold from 6.5% to 5.5%, thereby further delaying the date of hikes in the federal funds rate.

Not only is unemployment too high, but inflation is too low relative to the FOMC's 2% target, he said in remarks prepared for delivery at a country club in Eden Prairie, Minn.

"My outlook implies that monetary policy is currently not accommodative enough," said Kocherlakota, once thought of as something of a monetary policy "hawk."

Kocherlakota said he sees "inflation eventually returning to that 2% target under the FOMC's current forward guidance," but said he expects "a slow rate of progress."

Projecting 1.6% inflation in 2013 and 1.9% in 2014, he said "the FOMC could facilitate a faster return of the PCE inflation rate to the 2 percent target-that is, better promote price stability as mandated by Congress-by adopting a more accommodative monetary policy that puts more upward pressure on prices."

On Dec. 12, the FOMC set thresholds of 6.5% unemployment and 2.5% inflation for considering hikes in the federal funds rate from zero. But Kocherlakota suggested that is too conservative given the prognosis for unemployment and inflation.

"My own outlook is that growth will remain moderate over the next two years," he said. "As a result, under current policy, my outlook for inflation is that it will run below the Fed's target of 2% over the next two years and that the unemployment rate will be above 7% over that same period."

"Hence, the FOMC can better promote price stability and promote maximum employment, as mandated by Congress, by adopting a more accommodative policy stance," he continued.

"It can provide that extra accommodation by lowering the unemployment rate threshold in its forward guidance to 5.5% from the current setting of 6.5%," he added.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.