Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said central bankers should use prices in financial markets instead of statistical forecasts to help them determine whether they are meeting their inflation goals.
“My general argument implies that the appropriate outlook for the central bank is not a statistical forecast of inflation, but rather the risk-neutral expectation of inflation,” Kocherlakota said in the summary of remarks given in Ann Arbor, Michigan today. “This risk-neutral expectation can be measured using inflation break-evens on assets like zero coupon inflation swaps or TIPS bonds.”
The Minneapolis Fed chief, who was speaking at a symposium hosted by the University of Michigan, gave a similar speech on June 3. He did not comment on the U.S. economy in the summary or the slides of his remarks today.