Kocherlakota won't become Fed's next habitual dissenter

Sun Mar 23, 2014 3:17pm EDT
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By Ann Saphir

WASHINGTON (Reuters) - Minneapolis Federal Reserve Bank President Narayana Kocherlakota, whose differences with Fed Chair Janet Yellen over rewriting the central bank's pledge to keep interest rates low led him to cast the sole dissenting vote on Fed policy last week, has no plans to make a habit of saying "no," people familiar with his thinking say.

The Fed had pledged since December 2012 not to even consider raising rates until unemployment falls to 6.5 percent, a move designed to assure investors that rates would stay low even as the economy improved. Kocherlakota liked the approach, but lobbied his colleagues to go further by pledging low rates until unemployment rate falls to 5.5 percent, as long as inflation stays in check.

Last week, he lost that battle when the Fed dropped the numerical guidance altogether, and instead said it would take a wide range of factors into account as it assessed how long to keep rates low.

So Kocherlakota dissented, explaining on Friday in a statement that he was worried the Fed's actions suggested it was comfortable with the sub-par state of the economy.

But rather than use his vote at upcoming meetings to drive home his discomfort, Kocherlakota prefers to close ranks and move on.

Indeed, he said as much in an interview Friday, explaining his dissent.

"This is a debate that's over," he told The Wall Street Journal.

A lack of dissent from the Fed's most dovish member could prove critical as Yellen keeps winding down a massive bond-buying stimulus and plumbs the economic data for signs that the economy is ready for rate hikes. With no dovish dissent to act as a brake, the path to eventually tighter policy may become that much smoother.   Continued...

Minneapolis Federal Reserve Bank President Narayana Kocherlakota speaks at a macro-finance conference hosted by the Boston Federal Reserve Bank and Boston University in Boston, Massachusetts November 30, 2012. REUTERS/Brian Snyder