Before presumptive Fed chairman-designate Neel Kashkari was swinging his counterintuitive ax in the Minnesota woods, his seat at the Federal Reserve Bank of Minneapolis was occupied by Narayana Kocherlakota, the dovey-est of all the doves and a big believer in the Fed’s dual mandate. Kocherlakota didn’t just dissent from votes to raise interest rates—he dissented from votes on guidance that suggested the Fed might one day consider doing so. And annoyingly, he refused to just look at jobs data or any of the other numbers that might suggest some tightening of fiscal policy might be in order and just went on and on and on about the Fed’s 2% inflation target as though that were the Fed’s job. Because, you know, it is.
After leaving the Twin Cities, Kocherlakota found himself exiled to a place where the American Carnage is even more apparent than in Minnesota: Rochester, N.Y. And you’ll be pleased to know that his time in that rustiest of Rust Belt cities hasn’t changed him a bit. Not only does he think Janet Yellen & co. should stop raising rates—he thinks they should start buying bonds again, too.
I’d go further than many and say really the right question is how do we think about growing the balance sheet so as to keep it large as the economy grows. Eventually even $4.5 trillion will seem small given growth in the economy. And you really want to be having it grow on a steady basis with the size of the economy so as to be able to have a higher level of interest rates in place over the longer haul.
In other words, Kocherlakota would do whatever it took to create jobs and MAGA. This might not go over well with conservative Republicans, but it might be in line with what President Trump is thinking. And if that’s not enough to get Kocherlakota on the Fed short list, just wait until you hear this bit of unskewing that’s sure to delight the presidential ears.
There are many economists saying overly-strong things about 3% growth. So let me start by saying that it is very unlikely, a very low probability event, that the economy will average 3% growth over the next 10 years no matter what policies are chosen by Congress and the administration. So that’s over the next 10 years. However, just based on uncertainties and upside risk to just the rate of innovation, for example, in the economy, it is certainly within the realm of possibility that the economy could average 3% growth over the next four years.