Kocherlakota: Recent Developments Haven't Changed Outlook On Europe
First Published Thursday, 10th May 2012 07:26 pm - © 2012 Dow Jones
By Mark Peters
Of Dow Jones NEWSWIRES
MINNEAPOLIS -(Dow Jones)- A regional Federal Reserve Bank president said Thursday the events of the last week in Europe haven't changed his outlook on the debt crisis there.
Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said the risks Europe poses to the U.S. economy haven't changed materially in the last week following elections in Greece and France.
"It has got a lot of challenges built in there for European policy makers. I personally have been struck by how well they've been doing," he said during a press briefing here after prepared remarks to the Economic Club of Minnesota.
Like in his prepared remarks, Kocherlakota said the economy is closer to maximum employment than the unemployment rate of 8.1% reflects. He added he expects the unemployment rate over the longer run to be at 6%.
"The challenges really are about labor force participation, employment, population--what those are going to do over time," Kocherlakota said.
In the short term, he expects little impact on the U.S. economy from the conclusion of the Fed's $400 billion program in which it is purchasing long-term Treasury securities and selling short-term securities, as part of an effort to drive down long-term rates. The program ends next month.
Kocherlakota continued to suggest the Fed should start looking at tightening monetary policy in the next six to nine months. He sees inflation at around 2% this year and 2.3% in 2013, and those numbers signal the need to start exiting the Fed's current policy. He added the exit strategy should resemble the lengthy process the Fed sketched out last June.
"This doesn't mean starting to raise rates immediately. It means starting to prepare the ground work for raising rates. Exit is a very long and involved policy," Kocherlakota said.
He added that if fellow Fed officials agree with his assessment of needing to start an exit in six to nine months than the Fed's language on interest rates should be changed ahead of that period.
Federal Reserve officials have said they plan to keep short-term interest rates near zero until late 2014 to support economic growth.
-By Mark Peters, Dow Jones Newswires; 201-253-8906; email@example.com