We’ve written plenty about the Fed and QE-infinity on this site over recent days, so we had planned to lay things to rest for a while, but then Minnesota Federal Reserve Bank President Narayana Kocherlakota came out with one of the most perilous ideas yet from the Fed. Kocherlakota was formerly viewed as an inflation hawk. In fact in April of this year, during a speech to the Southern Minnesota Initiative Foundation, Mr. K said “My own belief is that we will need to initiate our somewhat lengthy exit strategy sometime in the next six to nine months or so, and that conditions will warrant raising rates sometime in 2013 or, possibly, late 2012.” Sounds sensible right?
Now, only a few months later, Mr. K has done a complete 180. Last week he told an audience, “As long as the FOMC satisfies its price stability mandate, it should keep the fed funds rate extraordinarily low until the unemployment rate has fallen below 5.5 percent.” At the current rate of jobs growth, that could take another six years. And take a wild guess at how Kocherlakota wants to measure price stability. Yup, by the Fed’s own inflation forecast. You can’t make this up. Only six months ago, the guy wanted to tighten policy based on his own forecast which proved to be woefully inaccurate. Now wants to double down, keeping the printing presses rolling until he and his colleagues forecast inflation. That is something I can confidently say we will never see until it is too late.
Jeremy Jones, CFA
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