Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said battling unemployment may mean keeping interest rates close to zero for four years, reversing his view that borrowing costs might have to rise as soon as this year.
As long as inflation doesn’t exceed 2.25 percent, the Fed “should keep the fed funds rate extraordinarily low until the unemployment rate has fallen below 5.5 percent,” Kocherlakota said. The comment aligns him with the Federal Open Market Committee’s decision last week to continue purchasing bonds until labor markets “improve substantially.” Kocherlakota is one of the first Fed officials to specify what he considers improvement in the labor market.
Lacker is a voting member of the FOMC this year and was the only policy maker to dissent at the Sept. 12-13 meeting. Next year Rosengren will have voting power on the panel. Kocherlakota won’t vote until 2014.
“Six to nine months down the road, we should be thinking about initiating our exit strategy,” he said.