Narayana R. Kocherlakota, president of the Federal Reserve Bank of Minneapolis is the only senior official arguing publicly that the Fed should do even more. The Fed’s leadership, including incoming chairwoman Janet L. Yellen, decided in December that the economy was strong enough to start scaling back its long-running stimulus campaign. The Fed is expected to announce another $10 billion cut in the Fed’s monthly purchases of Treasury and mortgage-backed securities.
Kocherlakota believes that the Fed has the power and the responsibility to address the problem of the persistent unemployment we are currently experiencing. Kocherlakota’s outspoken advocacy for stronger action is particularly striking because he spent his first three years at the Minneapolis Fed, following his appointment in 2009, loudly arguing that the Fed should do less. Kocherlakota does not oppose reductions in the Fed’s bond purchases, but he wants to compensate by strengthening its plans to suppress short-term interest rates. Kocherlakota asserted that the Fed largely lacked the power to reduce unemployment because the problem was not a lack of job openings, but a lack of workers qualified to fill those openings. “Monetary stimulus has provided conditions so that manufacturing plants want to hire new workers, but the Fed does not have a means to transform construction workers into manufacturing workers.” Kocherlakota had speculated, for example, that some workers might be unable to take jobs in other cities because their mortgage debts exceeded the value of their homes. Research revealed little evidence of this “house lock” phenomenon.
Should the Fed do more? Do they really have the power to fix the problem of persistent unemployment?
Source: The New York Times