Kocherlakota: FOMC moving too fast on taper

Inflation is too low, unemployment is too high, and the Fed is being too hasty in removing stimulus, says Minneapolis Fed boss Kocherlakota. "An unemployment rate of 6.7% means that the U.S. labor market is far from healthy," he says, "but I would say that this measure - troubling as it is - could well overstate the degree of improvement in the U.S. labor market."

Kocherlakota was the sole dissenter at the last FOMC meeting, when the group voted to taper further and signal a hike in the Fed Funds rate in H1 of 2015.

At this point December 2015 Eurodollar futures are pricing in just a bit more than three 25 basis point hikes in the Fed Funds rate between now and then. At the long end, the 10-year Treasury yield is off two basis points on the session to 2.68%.

TLT +0.25%, TBT -0.5%


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Comments (10)
  • Placebo Investment Advice
    , contributor
    Comments (4097) | Send Message
    C'mon Fed. Sooner or later you're going to have to let go of the media attention, the god complex, and the useless training wheels on the economy. You need to get back to your tradition of ill-timed tinkering with interest rates and tedious bloviating about economic projections that are wrong as often and they're right.
    8 Apr 2014, 03:35 PM Reply Like
  • notta lackey
    , contributor
    Comments (131) | Send Message
    Since when has the Fed been right 50% of the time?


    I think we need a new tapering program. Let's taper the Fed.
    8 Apr 2014, 05:46 PM Reply Like
  • Mark Humphrey
    , contributor
    Comments (931) | Send Message
    Help me understand. Aside from the obvious fact that the Fed is never, ever going to stop pumping trillions into new bank reserves, how could they possibly engineer a rise in the federal funds rate, supposedly in 2015? There are a trillion or so in excess reserves. So banks don't need to brorrow fed funds to meet reserve requirements. So the interest rate on fed funds, based on nearly zero demand, is nearly zero. If the Fed wants to administer a .5% fed funds rate, up from .25% today, then banks will stop borrowing and lending Fed funds altogether. It would be a meaningless interest rate that would no doubt cause other unforseen distortions.
    8 Apr 2014, 04:46 PM Reply Like
  • RS055
    , contributor
    Comments (5671) | Send Message
    I believe the plan is to start paying the banks a higher interest on their reserves. So for instance, the Fed could start paying the banks 1% ( instead of the current 25bp) on their reserves. Then , of course the Fed Funds rate would not logically fall below 1% - why lend your reserves out at less than 1%, when the Fed is paying you 1%?
    8 Apr 2014, 05:32 PM Reply Like
  • hummerh25
    , contributor
    Comments (99) | Send Message
    Your right on.
    In 2008
    There were 31 million on food stamps now 48 million.
    The average income was $55K now $51K a year.
    Unemployment 5.8% now 6.8%
    Doesn't sound like much help.
    8 Apr 2014, 04:51 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11311) | Send Message
    Even if the Fed turned around and became net SELLERS yields would still go down.


    This deflationary storm is just getting cooking...
    8 Apr 2014, 05:36 PM Reply Like
  • Regarded Solutions
    , contributor
    Comments (20531) | Send Message
    hmmm, the banks wont like this, especially BAC.
    8 Apr 2014, 09:30 PM Reply Like
  • sethmcs
    , contributor
    Comments (3570) | Send Message
    Is this what it sounds like when a dove cries? Doves are in the minority now. Please proceed with taper.
    8 Apr 2014, 09:31 PM Reply Like
  • sandiegosam
    , contributor
    Comments (85) | Send Message
    Its time to abolish the fed and let the market determine rates
    9 Apr 2014, 12:51 AM Reply Like
  • notta lackey
    , contributor
    Comments (131) | Send Message
    And cause a 75% unemployment rate for economists? Shame.
    9 Apr 2014, 10:32 AM Reply Like
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