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By Robin Harding in Washington
By Robin Harding in Washington
Two leading officials at the US Federal Reserve set out dramatically different views on monetary policy, highlighting the division among policymakers at the central bank.
In an interview with CNBC, Chicago Fed president Charles Evans said that he would “favour more accommodation” and argued that a short-term rise in inflation to 3 per cent was acceptable.
That contrasted with comments by Narayana Kocherlakota, president of the Minneapolis Fed, who said in a speech that the Fed could “lose control of inflation” if monetary policy is too loose, forcing it to jack up interest rates at a huge cost to future employment.
Their opposite viewpoints demonstrate the difficulty Ben Bernanke, Fed chairman, will face in forging a consensus when the rate-setting Federal Open Market Committee meets on September 20-21 to discuss its options for further monetary policy easing.
Mr Evans and Mr Kocherlakota were speaking ahead of the publication of minutes from the FOMC’s contentious August meeting, which forecast that interest rates will stay exceptionally low until mid-2013. Mr Evans voted for – and Mr Kocherlakota against – that decision.
Mr Evans indicated that the mid-2013 commitment did not go far enough. “I favour being much clearer and [more] specific about the economic markers that it would take in order for us to alter that,” he said.
He added that could mean a promise to keep rates low until unemployment fell from its current level of 9.1 per cent to 7.5 or even 7 per cent, as long as medium-term inflation stayed below 3 per cent.
Mr Evans is the first FOMC policymaker to explicitly countenance inflation above the Fed’s target of 2 per cent – something that Mr Bernanke has strongly resisted.
Mr Kocherlakota argued that inflation would exceed 2 per cent if monetary policy was loosened further.
In an interview with CNBC, Chicago Fed president Charles Evans said that he would “favour more accommodation” and argued that a short-term rise in inflation to 3 per cent was acceptable.
That contrasted with comments by Narayana Kocherlakota, president of the Minneapolis Fed, who said in a speech that the Fed could “lose control of inflation” if monetary policy is too loose, forcing it to jack up interest rates at a huge cost to future employment.
Their opposite viewpoints demonstrate the difficulty Ben Bernanke, Fed chairman, will face in forging a consensus when the rate-setting Federal Open Market Committee meets on September 20-21 to discuss its options for further monetary policy easing.
Mr Evans and Mr Kocherlakota were speaking ahead of the publication of minutes from the FOMC’s contentious August meeting, which forecast that interest rates will stay exceptionally low until mid-2013. Mr Evans voted for – and Mr Kocherlakota against – that decision.
Mr Evans indicated that the mid-2013 commitment did not go far enough. “I favour being much clearer and [more] specific about the economic markers that it would take in order for us to alter that,” he said.
He added that could mean a promise to keep rates low until unemployment fell from its current level of 9.1 per cent to 7.5 or even 7 per cent, as long as medium-term inflation stayed below 3 per cent.
Mr Evans is the first FOMC policymaker to explicitly countenance inflation above the Fed’s target of 2 per cent – something that Mr Bernanke has strongly resisted.
Mr Kocherlakota argued that inflation would exceed 2 per cent if monetary policy was loosened further.
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