Kocherlakota repeats support for Fed’s new easing

CHICAGO, Nov 22 (BestGrowthStock) – The U.S. Federal Reserve’s
latest effort to drive down borrowing costs to help the
economic recovery is a “move in the right direction,” but what
is also needed is more government clarity on tax and spending
policies, a top Fed official said on Monday.

The U.S. central bank’s $600 billion program of buying
Treasury securities, known as quantitative easing, has drawn
protests domestically and internationally since it was
announced earlier this month. Critics blame it for pushing down
the dollar’s value and setting the stage for future U.S.
inflation.

Fear that the policy will kindle inflation are misplaced,
Minneapolis Fed President Narayana Kocherlakota said in the
text of remarks to a business group in Sioux Falls, South
Dakota, which in large part repeated those he made last week in
Chicago.

The U.S. central bank has kept interest rates near zero
since December 2008, and has already bought $1.7 trillion in
long-term assets to support the economy, but inflation is low
and trending lower. More purchases of long-term assets will not
suddenly spark inflation, and the central bank is committed to
preventing inflation before it happens, Kocherlakota said.

While he expects the effects to be relatively modest, he
said, he supported the new round of purchases as “a move in the
right direction.”

Like other Fed officials defending the move in recent
weeks, Kocherlakota cited stubbornly high unemployment and
uncomfortably low inflation as serious drags on a flagging
recovery.

But Kocherlakota, who will rotate into a voting spot on the
Fed’s policy-setting committee next year, also nodded to the
concerns of his more hawkish colleagues, saying uncertainty
over the future of tax policy is holding back consumer and
business spending.

That is an argument that some Fed officials, including
Dallas Fed President Richard Fisher, have used as ammunition
against more Fed easing. Fisher, who will also vote next year,
has consistently said that it is lawmakers, not the U.S.
central bank, that must act to boost the economy.

Echoing that view, even while voicing his support for Fed
easing, Kocherlakota said investors and savers need more
clarity on whether the rising federal debt, and new government
obligations like the stewardship of mortgage lenders Fannie Mae
and Freddie Mac, mean taxes will rise or government programs
will be cut back.

“Absent such clarity, the economic recovery will be slower
than it otherwise would be,” he said.

For more stories on Fed policy, see [FED/AHEAD].

(Reporting by Ann Saphir, Editing by Chizu Nomiyama)

Kocherlakota repeats support for Fed’s new easing