narayana kocherlakota : monetary policy report to the people of rochester, minnesota speech by mr narayana kocherlakota, president of the federal reserve bank of minneapolis, at the rochester chamber of commerce, rochester, minnesota, 8 april 2014. * * * thanks to david fettig, terry fitzgerald and sam schulhofer - wohl for their assistance with these remarks and the supporting materials. accompanying graphs can be found at the end of the speech. thanks for the introduction, and thank you for the invitation to join you here today. it ’ s a pleasure to be back in rochester. i ’ ll begin my speech with some basics about the federal reserve system and the federal open market committee ( the fomc ). but the bulk of my remarks should be viewed as a quarterly report of sorts. your elected representatives, the congress of the united states, have charged the federal reserve with achieving key macroeconomic goals. my speech will be a report to you, the people of rochester, about how the fomc is doing in terms of achieving those goals. please keep in mind, though, that i will be expressing my own views, and they are not necessarily those of others in the federal reserve system. i look forward to responding to, and learning from, your questions at the conclusion of my remarks. federal reserve system basics let me begin with some basics about the federal reserve system. i like to tell people that the fed is a uniquely american institution. what do i mean by that? well, relative to its counterparts around the world, the u. s. central bank is highly decentralized. the federal reserve bank of minneapolis is one of 12 regional reserve banks that, along with the board of governors in washington, d. c., make up the federal reserve system. our bank represents the ninth of the 12 federal reserve districts and includes montana, the dakotas, minnesota, northwestern wisconsin and the upper peninsula of michigan. eight times per year, the fomc meets to set the path of interest rates over the next six to seven weeks. all 12 presidents of the various regional federal reserve banks – including me – and the seven governors of the federal reserve board contribute to these deliberations. however, the committee itself consists only of the governors, the president of the federal reserve bank of new york and a rotating group of four other presidents. i ’ m one of those four presidents this year. in this way, the structure of the fom

, ” i mean the unemployment rate averaged over the three months in the current quarter. the forecasts for future inflation and unemployment are the midpoints of the central tendencies of the projections of fomc participants that they released in november. just as a driver should adjust acceleration according to information provided by his dashboard, the fomc should vary the level of monetary accommodation in response to changes in the mandate dashboard. the exact quantitative response will depend on the precise movements of the six variables and on how the fomc is resolving the trade - off that i mentioned earlier between inflation risks and unemployment reductions. but the qualitative direction of the response is typically easier to determine. for example, the november 2010 dashboard shows that the fomc expected the unemployment rate to fall over time – slowly – and the inflation rate to rise – slightly. as that happens, the fomc should respond by slowly lowering its immense level of monetary accommodation. bis central bankers ’ speeches recent inconsistency in monetary policy actions i picked november 2010 as a good base date because at that point in time, the fomc added considerably to the level of monetary policy accommodation. the committee undertook the purchase of $ 600 billion of long - term treasuries over the following eight months, in what was called qe2. i supported this action within the meeting and then later publicly. the committee took no further significant policy action until the last two meetings in august and september 2011, at which the fomc added considerably more accommodation. i dissented from the fomc decisions at these last two meetings. my thinking behind those dissents is grounded in the evolution of the mandate dashboard over the past year. the entries for november 2010 are exactly what i ’ ve already shown you, and they ’ re based on the fomc ’ s economic projections. the fomc ’ s most recent 2011 projections date back to june, and so the entries for october 2011 are based on my own forecasts. the fourth quarter is not yet complete, but it looks like fourth - quarter - over - fourth - quarter pce core inflation in 2011 will be around 1. 9 percent. i expect it to rise over the next couple of years to slightly above 2 percent. at the same time, unemployment is 9. 1 percent. i expect it to fall slowly to around 8 percent by the end of 2013. i should say that private sector forecasts for inflation over the next two years are probably closer to 1