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As the Fed Gets Ready to Stop Tapering, Top Officials Voice Importance of Maintaining Interest Rates Low

Wednesday, October 8, 2014 - Article by: Lender411 Member

The Federal Reserve plans to stop tapering by the end of October, but Presidents of the Minneapolis and Chicago Federal Reserves, Narayana Kocherlakota and Charles Evans, advise otherwise. Last week after a rate drop, mortgage application activity increased 3.8% from a week earlier; the increased was led by an increased in refinacings.

A voter in the Federal Reserves policy setting panel, President Kocherlakota has argued and campaigned in favor of continued tapering, but the Federal Reserve will continue with its plan to stop bond purchases later this month. "Given where we are with inflation, I think that its challenging to know why we are removing stimulus from the economy at the rate that we are.... I think that is a challenging question, and I dont really have a good answer," he said. In spite of his position, last month, September 17th, the Feds rate-setting committee pledged to keep its interest rate near zero for a considerable time after the end of their bond buying stimulus.

In a National Association of Business Economist in Chicago, President Evans said "We should be exceptionally patient in adjusting the stance of U.S. monetary policy - even to the point of allowing a modest overshooting of our inflation target... I am very uncomfortable with calls to raise our policy rate sooner than later."

Both presidents have echoed Chairwoman Yellens argument that unemployment, while at its lowest point since 2008, may not be the best indicator of the labor markets health for policy makers. Kocherlakota argues unemployment overstates the strength of the job market and Evans seconds labor force participation has dropped faster than can be accounted for simply by the aging of the population, and wage growth, at just over 2 percent annually, lags the 3 percent to 4 percent that should be expected.

The Fed has kept interest rates at effectively zero since December 2008. It has also bought more than $3 trillion in government and mortgage bonds in an effort to revive frozen credit markets, and later to bolster a weak recovery and employment.

Kocherlakota earned a Ph.D. in economics from the University of Chicago in 1987 and an A.B. in mathematics from Princeton in 1983. Kocherlakota served as a member of the Minneapolis Feds Research staff, as well as a Research consultant for the Bank. His prior experience also includes professorships at the University of Minnesota, where he was chair of the Economics Department, and at Stanford University.

Charles L. Evans received a bachelor's degree in economics from the University of Virginia and a doctorate in economics from Carnegie-Mellon University in Pittsburgh. He has served as as director of research and senior vice president, supervising the Bank's research on monetary policy, banking, financial markets and regional economic conditions. His prior experience also includes professorships at the University of Chicago, the University of Michigan and the University of South Carolina.





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