Kocherlakota Says Central Banks May Have to Back Fiscal Debt

Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said it may be “optimal” for central banks to back government debts in certain situations, without referring to the U.S.

“I suspect that it may be optimal for central banks to guarantee fiscal authority debts in some situations,” the bank president, who votes on monetary policy this year, said in the text of a speech today in Philadelphia. He did not comment on monetary policy or the U.S. economy in his remarks.

The regional chief voted with the rest of the Federal Open Market Committee at its March meeting to keep in place the Fed’s second round of large-scale Treasury purchases to stimulate growth and reduce unemployment.

Kocherlakota said last month that the U.S. economy would have to “worsen materially” for the Fed to consider extending bond purchases past June.

Kocherlakota, 47, has led the Minneapolis Fed since October 2009 and is former chairman of the economics department at the University of Minnesota. Kocherlakota earned his bachelor’s degree in mathematics from Princeton University and his doctorate from the University of Chicago.

The bank president, in an interview published by the Wall Street Journal today, said policy makers may need to lift the target rate for overnight loans between banks by more than 50 basis points later this year if his inflation forecast holds out. He said he is expecting a “big upward movement” in inflation, excluding food and energy.

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