Coming from a family that I am sure could when the world sniping championships and hold that title for decades, my blog is full of not-so-nice things I’ve said about some powerful people. But tonight I thought a change of pace is in order because I found this short but sweet article about Kocherlakota on CNBC.com I would like to share:
Fed’s Kocherlakota: US interest rates are not low enough
“Interest rates are not low enough,” Minneapolis Federal Reserve President Narayana Kocherlakota said at a Town Hall here. The fact that the Fed has not been able to achieve its twin objectives of maximum employment and 2-percent inflation shows that rates are higher than they should be, he said.
Asked why then is the Fed reducing its bond-buying program, which is aimed at pushing down borrowing costs, Kocherlakota said he had no good answer.
“Given where we are with inflation, I think that it’s challenging to know why we are removing stimulus from the economy at the rate that we are,” he said.
My “sniping” genes say QE3 is being tapered just because. Though I think Kocherlakota probably knows more than he’s saying given not so long ago he was on the other side of the fence warning about bubbles and distortions in the bond markets from expansion of the Fed’s balance sheet (of which I posted a critique here).
It probably would have been better for him to respond to the question about why the taper by saying that the world is full of people who believe puzzling things and act on those beliefs without question. Because it is indeed a head-scratcher as to why core PCE inflation is now lower than it was when QE3 began and we had heard so much about risks to central bank credibility on the inflation target when action would have mattered more, and we have “the taper.” Maybe it’s all just more Pollyanna-syndrome or something.
We are better off today than we would have been without QE3. But there now seems to be a problem of erring on the side of barely mediocre that I have not been able to understand. And I really shouldn’t have to understand it because we’re supposed to have this inflation target, a nominal anchor that is supposed to moderate economic activity. Yet, the Fed’s dithering on the target and subsequently prosperity goes on with impunity, and without so much as justification as to why the target no longer matters (and he who hath wisdom understands what this means),
We can argue whether 2% is the right target or whether even having an inflation target is rationally justifiable for the tradeoff. But I think the argument has gone way past that because those situations are now more hypothetical than reality. We don’t know what the target is or if we even have one which is arguably a more dangerous situation than the ZLB (and we currently have both).
We’re living in perilous times, we are.