Fed dissenter explains reasoning

In a statement released this week, the Federal Open Market Committee, the Fed’s policymaking arm, indicated that it expects the economy to remain weak for some time.

The committee said that it intended to keep interest rates “exceptionally low” at least through the middle of 2013 — a change from earlier statements saying that rates would stay at that level for an “extended period.”

According to Kocherlakota, that “extended period” phrase usually suggests a three- to six-month time frame.

The Minneapolis Fed president, who has sounded open to higher interest rates in recent months, said in his statement that he saw no reason to move from the extended-period language, which the FOMC installed in November.

“I believe that in November, the committee judiciously chose a level of accommodation that was well-calibrated for the prevailing economic conditions,” Kocherlakota wrote.

The three dissents to the FOMC statement represent the highest rate of opposition in close to two decades.