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Must-know: Narayana Kocherlakota dissented from the FOMC statement

Surbhi Jain

FOMC Minutes – Key takeaways (Part 10 of 10)

(Continued from Part 9)

The minutes of the FOMC meeting

The FOMC meeting minutes were released on Wednesday, April 9. With the participants’ discussions coming to an end, the FOMC policy statement containing the forward guidance, was prepared and voted on. All voting members gave their consent to the statement, except the Minneapolis Fed President, Narayana Kocherlakota, who chose to dissent.

Kocherlakota dissented because, in his view, the new forward guidance of the statement would weaken the credibility of the committee’s commitment to its inflation goal by failing to communicate purposeful steps to more rapidly increase inflation to the 2% target. Moreover, he judged that the new guidance would act as a drag on economic activity because it provided no quantitative measure of what constitutes maximum employment, and so, would generate uncertainty about the extent to which the committee is willing to use monetary stimulus to foster faster growth.

However, Kocherlakota strongly endorsed the Committee’s intentions of providing information for the Fed funds rate once employment and inflation are near mandate-consistent levels, saying that it should help stimulate economic activity by reducing uncertainty.

To read more on Kocherlakota’s views on the new forward guidance issued by the FOMC, see Why Minneapolis Fed President Kocherlakota disagrees with the FOMC.


The committee then authorized and directed the Federal Reserve Bank of New York to execute transactions in the System Open Market Account (or SOMA) in accordance with the domestic policy directive issued to them pursuant to the above discussions and policy statement.

Subsequently, the next FOMC meeting was scheduled for Tuesday-Wednesday, April 29-30, 2014, and the policy statement was released.

In reaction to the FOMC announcement, the bond markets fell, leading the yields to spike. The fall impacted popular bond exchange-traded funds (or ETFs) like the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), and the SPDR Barclays High Yield Bond (JNK), which fell by 0.51% and 0.34%, respectively. The Dow Jones industrial average (DJI), which includes companies like Microsoft Corporation (MSFT) and Johnson & Johnson (JNJ) dropped 0.8%.

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