Kocherlakota Calls for 5.5% Jobless Threshold Before Tightening

Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said the Fed should do more to spur economic growth by reducing the threshold for consideration of a policy tightening to a 5.5 percent unemployment rate.

“My outlook for the next two years can be summarized as being an ongoing modest recovery,” with unemployment staying at 7 percent or more through late 2014, Kocherlakota said today in a speech in Minneapolis similar comments he made April 2. “This level of unemployment will continue to constrain wage growth. Consequently, inflation pressures will remain subdued.”

The slow recovery calls for “more accommodation,” the Minneapolis Fed president said in a speech, repeating his call to postpone consideration of any increase in interest rates. He does not vote on policy this year.

The Federal Open Market Committee in March reiterated its plan to buy $85 billion in bonds every month until the labor market outlook improves “substantially.” It also pledged to keep interest rates near zero as long as unemployment is above 6.5 percent and inflation doesn’t exceed 2.5 percent.

Fed Vice Chairman Janet Yellen said today in a speech she favors holding the benchmark interest rate “lower for longer,” while New York Fed President William C. Dudley said a slowdown in the pace of employment growth in March highlights the need to maintain the pace of bond purchases.

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