(Reuters) - Minneapolis Federal Reserve Bank President Narayana Kocherlakota on Tuesday said the idea of more Fed easing in the face of higher long-term unemployment "gives me pause."
Looser monetary policy tends to boost employment but also increases the risk of inflation, he said in an interview on CNBC television.
"If we use more accommodative policy, we are trying to use it to lower the long-term unemployment rate," he said.
"The tradeoff between long-term unemployment and inflation might well be quite different from -- it might well cost us too much. I'm not saying that's true, but it's something we should be very careful about."
The Fed has kept interest rates near zero for more than three years and has signaled it will keep them there through at least mid-2013. It has also bought $2.3 trillion in long-term securities to push down borrowing costs.
Kocherlakota, like Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser, dissented twice this year against Fed easing, but said on Tuesday he is not an inflation hawk.
"Policy should evolve," said Kocherlakota, who voted on the Fed's policy-setting panel this year and will not have a vote again until 2014.
"If my inflation forecast was to soften below where we were in the fall, and unemployment were to rise above where we were, that would be an argument for more accommodation, certainly."
Kocherlakota said his main aim was to make sure the Fed is consistent and has a "systematic plan of attack," and he reiterated his call for a clearer Fed blueprint on policy responses to specific economic developments.
Kocherlakota said recent economic data made him "a little more optimistic" than he had been and said he sees 2012 U.S. GDP growth approaching 3 percent.
reuters.com
Looser monetary policy tends to boost employment but also increases the risk of inflation, he said in an interview on CNBC television.
"If we use more accommodative policy, we are trying to use it to lower the long-term unemployment rate," he said.
"The tradeoff between long-term unemployment and inflation might well be quite different from -- it might well cost us too much. I'm not saying that's true, but it's something we should be very careful about."
The Fed has kept interest rates near zero for more than three years and has signaled it will keep them there through at least mid-2013. It has also bought $2.3 trillion in long-term securities to push down borrowing costs.
Kocherlakota, like Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser, dissented twice this year against Fed easing, but said on Tuesday he is not an inflation hawk.
"Policy should evolve," said Kocherlakota, who voted on the Fed's policy-setting panel this year and will not have a vote again until 2014.
"If my inflation forecast was to soften below where we were in the fall, and unemployment were to rise above where we were, that would be an argument for more accommodation, certainly."
Kocherlakota said his main aim was to make sure the Fed is consistent and has a "systematic plan of attack," and he reiterated his call for a clearer Fed blueprint on policy responses to specific economic developments.
Kocherlakota said recent economic data made him "a little more optimistic" than he had been and said he sees 2012 U.S. GDP growth approaching 3 percent.
reuters.com
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