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 The Fed had pledged since December 2012 not to even consider raising
rates until unemployment falls to 6.5 percent, a move designed to
assure investors that rates would stay low even as the economy
improved. Kocherlakota liked the approach, but lobbied his
colleagues to go further by pledging low rates until unemployment
rate falls to 5.5 percent, as long as inflation stays in check.
Last week, he lost that battle when the Fed dropped the numerical
guidance altogether, and instead said it would take a wide range of
factors into account as it assessed how long to keep rates low.
So Kocherlakota dissented, explaining on Friday in a statement that
he was worried the Fed's actions suggested it was comfortable with
the sub-par state of the economy.
But rather than use his vote at upcoming meetings to drive home his
discomfort, Kocherlakota prefers to close ranks and move on.
Indeed, he said as much in an interview Friday, explaining his
dissent.
"This is a debate that's over," he told The Wall Street Journal.
A lack of dissent from the Fed's most dovish member could prove
critical as Yellen keeps winding down a massive bond-buying stimulus
and plumbs the economic data for signs that the economy is ready for
rate hikes. With no dovish dissent to act as a brake, the path to
eventually tighter policy may become that much smoother.
Other Fed policymakers who disagreed with their peers played it
differently. Kansas City Fed President Thomas Hoenig dissented at
every meeting in 2010, saying the Fed should stop promising low
rates for an "extended period."
Esther George, who took over from Hoenig in 2011, was a serial
dissenter against easy policy last year, only stopping when the Fed
decided in December to begin paring bond buying.
A LONG CAMPAIGN
Kocherlakota had lobbied his colleagues since at least October 2012
to commit to keeping rates at rock bottom until the unemployment
rate falls below a threshold of 5.5 percent.
But the jobless rate, which has fallen from a recession-high of 10
percent to 6.7 percent in February, was approaching the threshold so
quickly that Fed officials believed the guideline no longer carried
much weight.
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So last week, at Yellen's first policy-setting meeting as Fed chair,
the Federal Open Market Committee members dropped the pledge and
said they would look at a wide range of factors to determine the
timing of a rate hike, which would in any case not come for a
"considerable time" after the Fed wraps up its bond-buying program
later this year.
Kocherlakota has made it clear that he would prefer the Fed be more
specific about the factors that will determine the rate- hike
timetable. He has also showed no sign of deserting his conviction
that the economy needs more, not less, stimulus.
A 180-DEGREE TURN
Kocherlakota has not ruled out another dissent.
In 2011, the last year the Minneapolis Fed chief had a right to a
vote on the policy-setting panel under the Fed's roster of rotating
votes, Kocherlakota dissented on an August decision to pledge to
keep rates near zero for at least two more years.
The economy, he thought, did not need the extra stimulus. Still, he
vowed to "abide by" the pledge.
The very next month, he dissented again, but this time for a
different reason: He disagreed with the Fed's decision to ease
policy further with the launch of an asset-purchase program known as
Operation Twist.
Kocherlakota stopped dissenting after that, even though the Fed
continued to promise low rates until mid-2013 and buy assets under
Operation Twist.
After a while, he even stopped publicly questioning the wisdom of
easing monetary policy, and by October 2012, joined those at the Fed
who fully supported further easing.
He did not dissent again until last week.
(Editing by Jan Paschal)
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