Not so long ago Minnesota Federal Reserve President Narayana Kocherlakota was being described as a "likely backer"of Bernanke by friendly press.
Less friendly Fed watchers referred to him as a "clueless backer" and even a "human footstool."
So it was a bit of a surprise when his name showed up on the list of dissenters from the Federal Open Markets Committee (FOMC) statement declaring that economic conditions were likely to justify extremely low rates for another two years.
“I do not believe that providing more accommodation—easing monetary policy—is the appropriate response to these changes in the economy,” Kocherlakota said Friday.
That sound very mild-mannered. But it may conceal something much more serious. After all, Kocherlakota has already explained that, from his perspective, dissent is only called for in cases where the Fed is making a very serious mistake.
Here’s an excerpt from an interview Jon Hilsenrath of the Wall Street Journaldid with Kocherlakota back in January.
WSJ: This is your first year with a vote on the FOMC. How do you see the most effective use of the voting power for an FOMC member? Some individuals see the merits of dissenting to make a point and get their view out. Others prefer to keep their disagreements or dissents internal and kind of work internally in the room. How do you see that vote as a part of your package as a policy maker?
MR. KOCHERLAKOTA: Both things can be useful. I’ve been on lots of committees. For example, you’re on a hiring committee, you’re thinking about whether or not to hire a particular candidate for your department. You’ll meet as a committee, and the discussions can be very pointed. People will offer pros and negatives. And most of the time, if you decide to go forward with an offer, the decision is unanimous.
Occasionally, people will actually dissent, and dissent means you’ll write a letter to the dean saying, ‘No, my colleagues have made a very bad decision.’ The bar for that is very high, but certainly if you feel strongly that the decision is going in the wrong direction, it is right for you to take tough stances. So I would say I take the vote at FOMC the same way. I think it’s best if we keep the dialogue internalized. So I’ll take your article from August, your fly-on-the-wall article about how the meeting worked, which I think was a little misleading in the sense that people are going to come in and express concerns about policies without necessarily being opposed to that policy at the end of the day.
And I think that’s very important for people to take away how the FOMC operates. Person X might be in there saying, ‘Hmm, you know, you’ve been saying the pluses about this policy, but there are also some minuses we should be keeping in mind.’ And that doesn’t mean at the end of the day that that person, Person X, is going to vote against that policy. At the same time, if a voting member feels sufficiently strongly the policy is going in the wrong direction, that the committee is taking the wrong steps, they should, at that point, I agree, dissent and communicate those concerns publicly.
So despite the mild words with which Kocherlakota couches his dissent, we know that it is based on his feeling “sufficiently strongly” that the Fed is going in the wrong direction.
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