How a Fed inflation hawk changed his mind

Tue Oct 9, 2012 7:27am EDT
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By Ann Saphir

CHICAGO (Reuters) - Narayana Kocherlakota surprised economists around the world last month when he called on the U.S. central bank to hold interest rates near zero, possibly for several years to come.

One of the newest members of the Federal Reserve's top table had been seen by many in financial markets as one of its more inflation-focused "hawks."

Only six months earlier, the head of the Minneapolis Fed had been calling for a tightening of monetary policy by the end of this year.

So it was considered an unusually swift about-face when Kocherlakota proposed keeping the Fed's benchmark rate near zero until unemployment is brought way below its current level.

For those who know him well, it was no surprise.

"Narayana was a very independent student. That was something I saw at a very young age," said Lars Peter Hansen, a professor at the University of Chicago, where Kocherlakota completed his dissertation at age 23, having entered Princeton University just before his 16th birthday.

"I've never really seen him as a person who is rigid."

Kocherlakota was unusually eclectic in his research and he jumped from one discipline to another with ease, Hansen said.   Continued...