Look! Up in the Sky! It’s a Hawk! It’s a Dove! No…It’s the President of the Minneapolis Fed!
When danger threatened Metropolis, mild-mannered reporter Clark Kent dashed into the nearest phone booth to change into Superman. When the U.S. economy begins to stall, inflation-hating hawk and president of the Minneapolis Fed, Narayana Kocherlakota, runs up to Ironwood, Michigan to transform into a monetary-policy dove.
Kocherlakota’s speech on Thursday at the Gogebic Community College in Ironwood, entitled “Planning for Liftoff,” was notable (maybe even shocking) for the following phrase:
As long as the FOMC satisfies its price stability mandate, it should keep the fed funds rate extraordinarily low until the unemployment rate has fallen below 5.5 percent.
On the Minneapolis Fed’s website, this sentence is even set in bold…perhaps to set off its significance. (Check out the full text or a video of the speech here)
What’s most amazing about this Kocherlakota’s comment is that back in April and May of this year, he was advocating that the Fed tighten monetary policy by late 2012 or early 2013. He was in opposition to the majority of the FOMC at the time. For context, consider that May was only five months ago.
Until yesterday, Kocherlakota was known as one of the more hawkish members of the U.S. central bank. So, maybe it’s not startling that he backed away from his “Six to nine months down the road, we should be thinking about initiating our exit strategy” comment, but to come all the way to “until the unemployment rate has fallen below 5.5%”…that’s something.
If you assume the current level of job growth is maintained, I figure it’ll take another two or two-and-a-half years to regain the over eight million jobs lost since the downturn. Using that estimate, you’re looking at 5.5% unemployment by mid-2015 – maybe a little longer if you factor in population growth. Either way, Kocherlakota now seems broadly in line with the Fed’s statements a ultra-low fed funds rate “at least through mid-2015.”