The spike in U.S. bond yields and the swings in stocks in reaction to the Federal Reserve's taper talk have been "outsized" versus the central bank's intentions, Minneapolis Fed President Narayana Kocherlakota told CNBC on Wednesday.
The Fed needs to be clearer on the future of the federal funds rate—the overnight leading interest rate that banks charge each other—not just on when the central bank might start to taper its $85-billion-a-month bond-buying program, known as quantitative easing, Kocherlakota said in a "Squawk Box" interview.
The market volatility really comes from questions on when short-term interest rates might go higher, he added, saying: "There continues to be a great deal of uncertainty about what the Fed is going to do with the fed funds rate, our main policy instrument, as the economy recovers more."
The Fed did repeat last week that it would not raise rates until unemployment falls to 6.5 percent or lower, provided the outlook for inflation stays under 2.5 percent.
"We sort of take for granted that people understand that we're going to be in the business of [rate] accommodation for long after asset purchases end," he said. "We're in the business of accommodation as the economic recovery strengthens."
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