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Kocherlaktoa wants UE rate threshold lowered to 5.5%

  • "New guidance weakens the credibility of the Committee’s commitment to target 2 percent inflation," says Minneapolis Fed boss Kocherlakota, explaining his dovish dissent from Wednesday's FOMC decision on forward guidance. The other reason: "New guidance fosters policy uncertainty and thereby suppresses economic activity."
  • Mostly worried inflation - as measured by the PCE rate - is closer to 1% than the 2% target, Kocherlakota wants to see forward guidance communicating "purposeful steps being taken to facilitate a more rapid increase of inflation."
  • What he would have liked to have seen: "“The Committee anticipates keeping the fed funds rate in its current range at least until the unemployment rate has fallen below 5.5 percent, as long as the one-to-two-year-ahead outlook for PCE inflation remains below 2 1/4 percent, longer-term inflation expectations remain well-anchored, and possible risks to financial stability remain well-contained.”
Comments (6)
  • tunaman4u2
    , contributor
    Comments (2744) | Send Message
     
    So the economy isnt that good you still need more eh?
    Yup, thought so...

     

    Hes probably right though, the cocaine addict is not strong enough to ween off
    21 Mar, 09:56 AM Reply Like
  • The Last Boomer
    , contributor
    Comments (881) | Send Message
     
    Wow, Kocherlakota is so surprisingly dovish but I tend to agree with everything he says. What worries me the most is the low and decreasing PCE inflation index growth. It is down to 1% while unemployment is uncomfortably high. Why would you raise the federal funds rates in these circumstances is unclear. It looks to me the Fed is fighting the ghosts of potential high inflation and financial instability when none of these is real and is abandoning the fight with the real threats of low economic growth and high unemployment. Of course, I would not fight the Fed: if they want to tighten, they will tighten and this has investment implications. Just saying that as economic policy their hawkish stance strikes me as unfounded.
    21 Mar, 10:06 AM Reply Like
  • Mike in Louisiana
    , contributor
    Comments (2) | Send Message
     
    I agree, I don't understand the concern for inflation by the hawks. There is currently no wage pressure or higher input costs from rising commodities. I understand that the Fed's extremely large balance sheet can feed into inflation, but since banks have tons of cash that they aren't lending I do not see that increasing the money supply dramatically either.
    21 Mar, 10:30 AM Reply Like
  • mobyss
    , contributor
    Comments (1840) | Send Message
     
    My comment on another article from a couple days ago:

     

    ----------------------...

     

    >The Fed's current pledge is to hold rates steady until "well past" the point when the unemployment rate falls below 6.5%. But the unemployment rate has steadily dropped over the past year, before ticking up slightly to 6.7% in February. "It is time to seriously rethink that 6.5% unemployment target because we are so close to it,"

     

    If the Fed keeps altering their "rate threshold" whenever it is close, then their credibility in having ANY threshold becomes worthless. Once the Fed loses its credibility it will be very hard to get it back.

     

    Of course the market doesn't care (for now) - they would love the Fed to walk it down from 6.5% to 6%, to 5.5%, to 5%, to 4%, to - "Aw hell - who are we kidding - we'll never raise rates!"

     

    ----------------------...

     

    Well, here we are, and sure enough a "5.5%" threshold is out there to test the waters. The Fed may not every formally state 5.5%, but you can rest assured that they will wait for UE to be well under 5.5% before raising rates.

     

    As always for the last five years, any hint at tightening will cause the markets to sell off hard, and of course the "Wealth Effect" is pretty much the only thing holding this economy together. We will be trapped in ZIRP for at least another four or five years, maybe more - just like Japan which is now at 20+ years and counting
    21 Mar, 12:14 PM Reply Like
  • caupachow
    , contributor
    Comments (333) | Send Message
     
    @mobyss I remember reading that comment and thinking to myself he is probably 99% right on. Well today we know it's 100%.
    21 Mar, 04:27 PM Reply Like
  • sethmcs
    , contributor
    Comments (3080) | Send Message
     
    Dissent is the tool of the minority. Three hawks rotated on the committee.
    21 Mar, 04:40 PM Reply Like
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