By David Bailey
BLOOMINGTON, Minn., Oct 4 (Reuters) - The Federal Reserveshould do "whatever it takes" to drive down U.S. unemployment,even if this means courting concerns of another asset pricebubble, or if inflation pops temporarily above two percent, asenior U.S. central banker said on Friday.
"The labor market remains disturbingly weak. The good newsis that, with low inflation, the FOMC has considerable monetarypolicy capacity at its disposal with which to address thisproblem," said Minneapolis Fed President Narayana Kocherlakota,referring to the policy-setting Federal Open Market Committee.
His comments closely followed a speech he gave last week.
"Doing whatever it takes will mean keeping a historicallyunusual amount of monetary stimulus in place - and possiblyproviding more stimulus," he said in prepared remarks.
Kocherlakota added that this would be the case "even as"rising asset prices courted concerns of another bubble, or themedium term outlook for inflation rose above 2 percent, theFed's stated medium-term goal.
"It may not be easy to stick to this path. But I anticipatethat the benefits of doing so, in terms of employment gains,will be significant," he said.
The Fed stunned markets last month by opting to continue tokeep buying bonds at an $85 billion monthly pace, despitewidespread expectations it would start to scale back, signalingthe end to an unprecedented phase of ultra-easy monetary policy.
Its caution has since appeared to have been vindicated byeconomic unease caused by political gridlock in Washington.
A stand-off between President Barack Obama's Democrats andRepublican Tea Party conservatives triggered a governmentshutdown and is courting a damaging debt default, if lawmakersfail to raise the U.S. debt ceiling by Oct. 17.
Officials, including from the Fed, warn this couldpotentially tip the United States back into a severe recession.
Kocherlakota did not refer to the battles in Washington inhis prepared remarks. But he did stress the need to actdecisively to speed up the pace of U.S. hiring.
"In 2013, the FOMC's goal should be to return employment toits maximal level as rapidly as it can, while still keepinginflation close to, although possibly temporarily above, thetarget of 2 percent," he said.
- Budget, Tax & Economy
- Politics & Government
- Narayana Kocherlakota