Kocherlakota Would Need ‘Materially’ Worse Data to Extend QE
March 25, 2011, 10:18 AM EDTBy Scott Hamilton
(Updates with U.S. GDP data in fourth paragraph.)
March 25 (Bloomberg) -- Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said the U.S. economy would have to “worsen materially” for the central bank to consider extending its second round of bond purchases past June.
“I am not one who would say that I would remove all possibility of further easing, but that would require conditions to worsen materially from what I forecast,” Kocherlakota told reporters today at an event in Marseille, France. “If the economy evolves the way I forecast, I would not foresee us doing further accommodation.”
The regional bank chief, who holds a vote on monetary policy this year for the first time, voted with the rest of the Federal Open Market Committee last week to keep in place the current round of Treasury purchases to stimulate growth and reduce unemployment. He said today that he would look at core inflation to guide his assessment whether the Fed should extend the $600 billion program or begin tightening policy.
The Commerce Department in Washington said today the U.S. economy grew at a 3.1 percent annual rate in the fourth quarter, faster than the 2.8 percent estimate issued last month. Consumer spending rose 4 percent, a pace that may not be matched in the current quarter after oil prices soared.
Inflation Impact
Kocherlakota said energy prices “in particular are extremely volatile” and the impact of the current surge on inflation is “transitory.” Crude oil has risen about 38 percent in the last six months and was trading above $105 a barrel today, close to the highest since September 2008.
“Core inflation is going to be a better guide to what’s going to be happening to inflation over the next three or four years,” Kocherlakota said. It is “telling me that our position is appropriately accommodative.”
The U.S. consumer-price index rose 0.5 percent in February from the previous month, the most since June 2009, according to data published March 17. The core gauge, which excludes volatile food and fuel costs, increased 0.2 percent.
“We’ve made a commitment to have a certain stock of purchases to be completed by June. I view the bar for not completing those purchases as being extremely high,” Kocherlakota said at the event, hosted by the Institut D’Economie Publique. “After that, as data and information flow in, we should be considering what to do.”
--Editors: Fergal O’Brien, Kevin Costelloe
To contact the reporter on this story: Scott Hamilton in Marseille at shamilton8@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
