Kocherlakota Sees Unemployment Above 7% Until Second Half 2014

Federal Reserve Bank of Minneapolis President Narayana Kocherlakota, who doesn’t vote on monetary policy this year, said he favors continuing bond purchases until unemployment falls below 7 percent, which he doesn’t expect until the second half of next year.

“I’m expecting the unemployment rate to be hitting 7 percent sometime in the second half of 2014,” Kocherlakota said today in an interview on CNBC. He backs a strategy of buying assets “at least until” unemployment is below 7 percent.

kocherlakota-sees-unemployment-aboveChairman Ben S. Bernanke said June 19 the Fed may cut its $85 billion in monthly bond buying this year and end it around mid-2014 if the economy grows in line with the central bank’s forecast. His comments pushed down stocks and bonds. Since the day before his remarks the Standard & Poor’s 500 Index has fallen 3.9 percent, while the yield on the 10-year Treasury note has risen to an intra-day high of 2.66 percent from 2.19 percent.

Kocherlakota may be more pessimistic about unemployment than many of his colleagues on the Federal Open Market Committee. Bernanke said last week that by mid-2014 unemployment would likely be “in the vicinity of 7 percent.”

The Minneapolis Fed chief has stressed that the Fed still remains accommodative, telling reporters June 24 the central bank should highlight the line from its policy statements that stimulus will persist “for a considerable time” after the end of quantitative easing. “We have to bring that forward and hammer it every time we talk about policy,” he said.

Today he said the Fed will be “in the business of accommodation long after the asset purchases end.”

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