Fed’s Kocherlakota Says Central Banks Could Guarantee Debts

Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said a central bank seeking to control inflation needs to find a balance between supporting a government’s debt issuance and allowing for sovereign default.

“It may turn out to be optimal for central banks to guarantee fiscal authority debts in some situations,” Kocherlakota said today in a panel discussion in Chicago. If so, economists may need to consider control of inflation as “something that is done jointly by the fiscal authority and the central bank.” He didn’t back such guarantees, saying a central bank furthers its independence by avoiding “interventions.”