Featured Post from University of Rochester

The Fed Should Consider Lowering Rates say the Experts from University of Rochester

Jan 28, 2019

2 min

On Wednesday, the Chairman of the Federal Reserve will be delivering another interest rate decision that could direct or at least prompt a punch to the arm the country’s economy.

In fact, according to Narayana Kocherlakota who is currently a Professor of Economics at the University of Rochester, and who also served as the President and CEO of the Federal Reserve Bank of Minneapolis from 2009-2015 – the Fed should be dropping rates to increase stimulus t an economy in very much in need of help.

In a column (see attached) published this week in Bloomberg Opinion, Kocherlakota offered this perspective,

So, the Fed has been falling short — arguably well short — of both its inflation and employment mandates for a long time. How can it do better? It should take two steps.

First, as I’ve argued before, the Fed shouldn’t be reducing the vast holdings of bonds that it amassed in its efforts to stimulate the economy after the last recession. Instead, it should commit to increasing its asset holdings by about 4 percent per year. That way, as the economy grows over time, its balance sheet will remain sufficiently large to help combat any recessionary risks.

Second, the Fed often says that it sets monetary policy based on the incoming economic data. Such claims ring hollow when we look at the record. Recently released transcripts from its June 2013 policy-making meeting show that more than half the participants thought inflation would be below 2 percent for the next 30 months. All thought unemployment would stay above 5.5 percent. Yet it was precisely at that meeting that they agreed to begin tightening by announcing their intention to ease off on bond purchases in the near future.”

So, what can we expect from Wednesday’s decision by the Fed?

Will we see a drop in rates?
What will a higher interest rate look like and what would that mean for America’s economy?
Or … if nothing changes and the Fed holds steady, what will that mean for the economy in the short term?

There are a lot of questions and that’s where the experts from the University of Rochester are available. Dr. Narayana Kocherlakota was the President and CEO of the Federal Reserve Bank of Minneapolis from 2009-2015. As part of his responsibilities in that position, he served on the Federal Open Market Committee (FOMC), the monetary policymaking arm of the Federal Reserve System. He is currently a Lionel W. McKenzie Professor of Economics and is an expert in financial economics, interest rates and monetary policy. Narayana is available to speak with media regarding the economic effects of the shutdown – simply click on his icon to arrange an interview.

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Narayana Kocherlakota

Louis and Henry Epstein Professor of Business Administration at the Simon School of Business

Professor Kocherlakota's research includes theoretical and empirical contributions to many fields in economics

Central BanksU.S. Federal ReserveDynamic Games/ContractsFinancial EconomicsEconomics of Money and Payments

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