In “All hail Kocherlakota”, Scott Sumner asks:
I’ve also said the Fed should cut rates now. Indeed I’ve said just about everything Kocherlakota says here. How did Kocherlakota ever get appointed to the Fed? They need to screen candidates more carefully.
Oh! They were good at screening! Kocherlakota became president of the Minneapolis Fed in October 2009. Less than one year later he made a speech that absolved the Fed:
Of course, the key question is: How much of the current unemployment rate is really due to mismatch, as opposed to conditions that the Fed can readily ameliorate? The answer seems to be a lot. I mentioned that the relationship between unemployment and job openings was stable from December 2000 through June 2008. Were that stable relationship still in place today, and given the current job opening rate of 2.2 percent, we would have an unemployment rate of closer to 6.5 percent, not 9.5 percent. Most of the existing unemployment represents mismatch that is not readily amenable to monetary policy.
In that same speech he “founded” the Neo Fisherite school of economic thought when he said:
“if the Fed Funds rate was kept at zero the appearance of deflation was only a question of time!”
The people who screened him just never imagined he could be so “ungrateful”! By 2013, Kocherlakota was saying: “Fed has not lowered interest rates enough”:
The Federal Reserve has not done enough to lower U.S. borrowing costs to boost economic growth, a top Fed official said on Friday, citing his outlook for overly low inflation and overly high unemployment over the next two to three years.
Since the Great Recession, workers and businesses are seeking safer assets, even as the supply of assets perceived as safe dwindles, Minneapolis Fed President Narayana Kocherlakota told a group convened by the University of Chicago Booth School of Business.
“The increase in asset demand, combined with the fall in asset supply, implies that households and firms spend less at any level of the real interest rate-that is, the interest rate net of anticipated inflation,” he said in prepared remarks.
Steven Williamson, for example, was angered by Kocherlakota´s “about face”:
As for the contributions of Kocherlakota to monetary policy, I think it’s fair to say that he has set us back rather than pushing us forward. Case in point is his latest speech.
The FOMC really needs more Kocherlakota types, people that recognize mistakes or that can simply change their minds (“when the facts change”).