By Ian McKendry

WASHINGTON (MNI) – Outside of long-term unemployment, the economy
appears to be improving and further accommodation may not be necessary
at the moment according to Minneapolis Federal Reserve President
Narayana Kocherlakota.

“One of the things that gives me pause about doing more
accommodation at this time, is when I look at a lot of measures of slack
right now, [they] look fairly consistant with what they looked like
seven years ago,” Kocherlakota said during a CNBC interview Tuesday.

Kocherlakota said the unemployment rate of people unemployed six
months or less is roughly where it was in 2004 and that capacity
utilization, another measure of “slack” is at the same level it was
seven years ago. He said the problem of long-term unemployment is where
the economy looks very different and addressing it with further
accommodation may not be the best course.

“The trade-up between long-term unemployment and inflation may well
be quite different” Kocherlakota said, adding “I am not saying it is
true, but is something we should be very careful about.”

Kocherlakota, who has been hawkish, said he could see unemployment
fall to as low as 8.0% in 2012 and 7.5% in 2013 and that economic policy
should reflect the condition of the economy and not necessarily outside
forces such as the European debt problems.

“If my inflation forecast was to soften below where we were in the
fall and unemployment was to rise above where we were, that would be an
argument for further accommodation, certainly.”

When asked if he is an inflation hawk, Kocherlakota said he views
himself more as a “consistency hawk” and that he dissented in the August
FOMC meeting because “I didn’t see providing more accommodation as
consistant with the evolution of the data.”

Kocherlakota also said he has “a lot of confidence” the Fed could
change course if excess reserves became high powered money because of
its ability to pay interest on reserves.

As far as a change in communication in the January FOMC statement,
Kocherlakota said it’s an “ongoing dialogue.”

** Market News International Washington Bureau (202) 371-2121 **

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