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BETTER POLICY
THROUGH BETTER

COMMUNICATION
TWO CONVERSATIONS WITH

NARAYANA KOCHERLAKOTA

2012 ANNUAL REPORT
FEDERAL RESERVE BANK

OF MINNEAPOLIS

2012 ANNUAL REPORT • FEDERAL RESERVE BANK OF MINNEAPOLIS
PRES IDENT’S MESSAG E

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BETTER PO LIC Y
THRO U GH BETTER CO M M UN ICAT IO N

7

MESSAGE FRO M
THE FIRST VIC E PRE SID EN T

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HELENA BRANC H BOA R D O F D IR ECTO R S

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MINNEAPO LIS BOAR D O F D IR ECTO R S

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CO MMUNITY DEPOSITO RY IN ST IT UT IO N S
ADVISO RY CO UNC IL

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ADVISO RY CO UNC IL O N AG R ICULT UR E

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ADVISO RY CO UNC IL O N SM A LL B USIN ESS
AND LABO R

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S ENIO R MANAGEME N T

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O FFIC ERS

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THE REGION
FEDERAL RESERVE BANK OF MINNEAPOLIS
PO BOX 291
MINNEAPOLIS MN 55480-0291
EMAIL: LETTERS@MPLS.FED.ORG
WEB: MINNEAPOLISFED.ORG

EXECUTIVE EDITOR: KEI-MU YI
SENIOR EDITOR: DAVID FETTIG
EDITOR: DOUGLAS CLEMENT
MANAGING EDITOR: JENNI SCHOPPERS
DESIGNER: MARK SHAFER

The Region is published by the Federal Reserve Bank of Minneapolis.
The views expressed here are not necessarily those of the Federal Reserve Bank of Minneapolis
or the Federal Reserve System. Articles may be reprinted if the source is credited and the
Public Affairs Department of the Minneapolis Fed is provided with copies.
Permission to photocopy is unrestricted.
Volume 27 Number 1, ISSN 1045–3369
April 2013

1

TWO
INTERWOVEN
MONETARY
POLICY
JOURNEYS

THE FIRST JOURNEY

IS MY OWN
xx

MESSAGE FROM THE PRESIDENT

This year’s annual report is about two interwoven monetary policy journeys.
The first journey is my own. Early in 2012, I suggested in public remarks that the Federal Open Market
Committee might need to raise the fed funds rate considerably earlier than it was currently
contemplating. Several months later, in September 2012, I gave a speech in Ironwood, Mich.,
recommending that the FOMC should commit to keeping the fed funds rate extraordinarily
low until the unemployment rate fell below 5.5 percent, as long as the medium-term inflation
outlook stayed sufficiently close to the Federal Reserve’s long-run 2 percent target and longerterm inflation expectations continued to be well anchored. (My proposal was closely related to
one advanced by Charles Evans, president of the Federal Reserve Bank of Chicago, about a year
previously.) The annual report provides details about why I favored the Ironwood proposal at
the end of 2012, as opposed to my prior recommendations.
The second (and much more important) policy journey is that of the FOMC itself. In its
January 2012 policy statement, the FOMC said that it
“ … currently anticipates that economic conditions—including low rates of resource
utilization and a subdued outlook for inflation over the medium run—are likely to
warrant exceptionally low levels for the federal funds rate at least through late 2014.”
With this statement, the Committee gave information to the public about how long it intended to maintain the fed funds rate at extraordinarily low levels. But in its December 2012
policy statement, the FOMC switched to a different kind of communication. Instead of saying

P H OTO G R A P H B Y G L E N S T U B B E , S TA R T R I B U N E

3

how long it expected the fed funds rate to remain low, it described economic conditions that
would need to prevail before it would consider raising the fed funds rate. More specifically, the
Committee announced that it
“… currently anticipates that this exceptionally low range for the federal funds rate
will be appropriate at least as long as the unemployment rate remains above 6-1/2
percent, inflation between one and two years ahead is projected to be no more than a
half percentage point above the Committee’s 2 percent longer-run goal, and longerterm inflation expectations continue to be well anchored.”
The annual report provides my thoughts about the significance of this change in Committee
communications.
The report has a somewhat unusual structure. It consists of edited versions of two distinct
interviews with me, conducted by Doug Clement of the Federal Reserve Bank of Minneapolis.
The first took place in November 2012, after my Ironwood speech but before the Committee’s
change in communications. Consequently, it focuses more on my policy journey. The second
interview took place in December 2012, about a week after the Committee’s change in communications. It’s more informative about the other monetary policy journey, the FOMC’s.
But it would be a mistake to draw too sharp a distinction between these two journeys. My
Ironwood proposal and the Committee’s new communication strategy have much in common.
They both frame communication about the future course of policy in terms of quantitative
goals—specific macroeconomic objectives the FOMC is seeking to achieve. I see this resultsoriented approach to monetary policy as especially valuable in light of current U.S. macroeconomic conditions. But I believe it will likely continue to be valuable long into the future.

Narayana R. Kocherlakota
President

4

THE SECOND (AND MUCH MORE
IMPORTANT) POLICY JOURNEY

IS THAT OF THE

FOMC ITSELF

xx

BETTER POLICY
THROUGH BETTER

COMMUNICATION
TWO CONVERSATIONS WITH

NARAYANA KOCHERLAKOTA

O

n Sept. 11, 2012, the Federal Open Market Committee announced that it antici-

pated keeping the fed funds rate extraordinarily low at least until mid-2015. Shortly after that
announcement, I gave a speech in Ironwood, Mich., in which I suggested that the Committee
could provide more current stimulus by describing what kinds of economic conditions would
have to be met before it would consider raising the fed funds rate above its current extraordinarily low level. This kind of communication was proposed in September 2011 by Charles Evans,
president of the Federal Reserve Bank of Chicago, and has hence been termed “the Evans
rule.” The FOMC did in fact adopt a version of the Evans rule in its December 2012 meeting.
The following is based on two interviews with me that were both conducted by Doug
Clement of the Federal Reserve Bank of Minneapolis. The first interview took place on Nov. 19,
2012—after the Ironwood speech but before the December FOMC decision. The second interview took place on Dec. 19, 2012, a week after the December FOMC decision.
—Narayana Kocherlakota*

* I thank Doug Clement for his excellent questions—and I thank David Fettig, Terry Fitzgerald, Sam Schulhofer-Wohl and
Kei-Mu Yi for comments that helped improve my answers.

7

BEAR IN MIND THAT

TWO GOALS
HAVE BEEN ASSIGNED TO US BY CONGRESS
ONE IS TO

PROMOTE

PRICE
STABILITY
AND THE OTHER IS TO

PROMOTE

MAXIMUM

EMPLOYMENT

xx

NOVEMBER INTERVIEW
CURRENT MONETARY STANCE
Doug Clement: Perhaps we could start with your current view on how the Fed should be setting its
monetary policy.
Narayana Kocherlakota: In thinking about that question, bear in mind that two goals have

been assigned to us by Congress when we—and by “we,” I mean members of the Federal Open
Market Committee—make monetary policy. One is to promote price stability, and the other
is to promote maximum employment. And we face limitations on what our tools can accomplish. Monetary policy impacts the economy with a lag of one to two years. So we’re aiming to
achieve those goals over a one- to two-year time frame.
Now, what does this mean quantitatively? Well, the Fed has a target of 2 percent inflation
over the longer run. And right now most FOMC participants are forecasting that personal
consumption expenditure inflation, which is the Fed’s preferred measure of inflation, will run
at or below 2 percent over the next year or two.1 Over that same time frame, unemployment is
predicted to be elevated relative to where it’s going to be in the long run, again, based on our
FOMC participants forecast.
So, right now we have inflation forecast at or below our 2 percent target over the next year
or two and unemployment high relative to where we want to be in the longer run, expect it to
be in the longer run.
By providing more monetary stimulus, the FOMC can facilitate a faster transition of unemployment to its long-run lower level while keeping inflation close to target. I think there’s a
question of how we can do that. And that’s what the proposal that I made in Ironwood [Michigan, in September 2012] is designed to accomplish.2
Could you restate the liftoff plan you proposed in Ironwood?

Sure. The liftoff plan is to sustain low interest rates; that is, we’ll keep the fed funds rate extraordinarily low at least until unemployment falls below 5½ percent, as long as the medium-term
outlook for inflation remains within a quarter of a percentage point of 2 percent, the longrun target. “Medium term” meaning—I’m very precise on this in the speech—but it basically
means a two-years-ahead outlook for inflation.

9

So, those are the numerical thresholds.

Those are the thresholds. So, generally, people would be thinking about the thresholds of 2¼
percent and 5½ percent. And these are thresholds in that you’re committing to keeping interest
rates low as long as you remain within those zones.
After hitting one of the thresholds, you’re not making any commitment about what’s going to happen. There’s going to be a policy conversation. I would say it’s a return to business
as usual, frankly. It’s the point at which we’d have a serious discussion about the trade-offs we
face, et cetera.
But in that zone defined by the thresholds, you keep interest rates low.
Why have you provided explicit economic conditions, you call them “thresholds,” rather than the calendar
dates the Fed has relied on more traditionally?

Well “traditionally” … [laughter]. Boy, things become traditions very rapidly.3
But, joking aside, that’s a good question: What was the benefit of this proposal as opposed to
saying “the FOMC will keep interest rates low until, say, mid-2016.” Right now the Committee
is saying mid-2015.4 Let’s say we extend it to mid-2016.
Well, I think that change in the date would be confusing. And the reason it’s confusing is
that people don’t know if the FOMC changed the date because it thinks conditions are worse,
or because the FOMC is simply providing more accommodation given the same conditions.
So it’s ambiguous about the state of the economy.

It’s ambiguous about the state of the economy, exactly. If people think it’s because we have
information about the state of the economy that they don’t have, and we convey to them that
that information tells us the economy is going to be bad, then this will not necessarily be a
stimulative policy; it could actually be the opposite of that.
The other thing is that we’re making no commitments. Whenever we use a date, we’re very
careful to say it’s not a commitment. We said this is what we anticipate will be true. That gives
rise to a lot of ambiguity and speculation about “the Fed might raise rates before 2016, maybe
raise the rates after that.” We’re not really conveying much information. These thresholds, on
the other hand, I think deliver exactly the kind of information we want to provide. That is, they
set forth the conditions we will need to see before we would even begin to consider raising rates.

CHOOSING THRESHOLD NUMBERS
Can we talk about the numbers themselves, especially the inflation figure? Your liftoff plan raises the
possibility of exceeding the Fed’s long-term inflation target of 2 percent that was made very explicit quite

10

A BALANCED APPROACH MEANS
YOU SHOULD BE WILLING TO

ALLOW INFLATION
ABOVE ITS 2 PERCENT TARGET TO

FACILITATE A

FASTER

TRANSITION

OF UNEMPLOYMENT TO LOWER

MORE DESIRABLE
LONGER-RUN LEVELS

recently. And you say, “Perhaps we can raise inflation a bit higher than that.” I think that raises a concern
about how seriously the public should take targets that the FOMC sets.

I think this is a great question. The FOMC, the way it states the target in its long-run goals and
strategy statement is that over the longer run, inflation should be at 2 percent.5 It then also says
it’s going to follow a balanced approach to the two mandate objectives of maximum employment and price stability.
What does this mean? Let’s suppose we didn’t have a maximum employment mandate. We
only had the price stability mandate. That would indicate that we should try to keep inflation
close to 2 percent. But if you look around the world at inflation-targeting banks, they are often
willing to allow for small deviations, over the medium term, between where inflation goes and
their longer-run inflation target.
Why is that? It’s because they don’t want to cause undue damage to the real economy by
tightening too much or by providing too much accommodation if they’re trying to get the rate of
inflation up. That by itself would argue for some deviation. That is, even if you just had a single

11

HOW MUCH
UNEMPLOYMENT

IS CAUSED BY EACH

STRUCTURAL

FACTOR?
GENERALLY, THE ANSWER IS

NOT A LOT

mandate, you might well be thinking about the real economy in trying to set monetary policy.
Now, obviously, the existence of the second mandate pushes even more toward allowing for
some deviation. Having a balanced approach to the two mandates means that you should be
willing to allow inflation to be above its 2 percent target in order to facilitate a faster transition
of unemployment back to its lower, more desirable longer-run levels.
Why not bring it up to 3 percent if that will bring unemployment down more quickly? Why did you decide
on a quarter percentage point above 2 percent?

I set it at a quarter percentage point because, actually, given how high unemployment is, I
think it’s unlikely we could ever get the medium-term inflation outlook to be as high as 2¼
percent, frankly.
We have our long-run goal of 2 percent, and if we have as much slack as we do in the
economy that’s pushing downward on wages relative to where people think they’re going to

12

be in the longer run, it’s hard for that inflation outlook to get up to 2¼ percent. We could say
3 percent, but I don’t think we’d get to 3 percent. So, I think 2¼ percent is allowing as much
leeway as we really need.
What about the second figure, for the rate of unemployment? The liftoff plan specifies a threshold of 5½
percent. How did you arrive at that figure?

So that number … I think I got the reaction to that number I wanted to have. People were
shocked at the idea that the Fed would keep rates low for that long. That’s exactly the reaction
I wanted to have. I wanted to surprise people with that number because if you want a policy to
be truly stimulative relative to the current policy stance, to be actually helpful, you have to be
surprising people with what you were saying on that dimension.
I think there is a question about why not a lower number than 5½ percent. The answer to that
is, then I did start to worry about the tensions with the 2¼ percent. Over a longer time horizon,
you have to start to think about whether the Committee would be willing to have the inflation
outlook go even higher than 2¼ percent to get unemployment even lower than 5½ percent.
Given the Committee’s thinking, typically, about how it views its longer-run objectives, the
2¼ percent/5½ percent numbers were consistent with how I thought the Committee would
behave in the future, basically. And you don’t want to lay out something that seems implausible
for the Committee to deliver on.

THRESHOLDS, NOT TRIGGERS
You said that these are “thresholds,” not “triggers.” Would you explain that distinction?

If I said 5½ percent was an unemployment “trigger,” I’d mean that we would automatically raise
the fed funds rate as soon as the unemployment rate fell below 5½ percent. Similarly, if I said
2¼ percent was an inflation “trigger,” I’d mean that we would automatically raise the fed funds
rate as soon as the inflation outlook rose above 2¼ percent.
By using the term “threshold,” I’m trying to communicate that the policy commitment is
one-sided. The public does have a guarantee that we won’t raise interest rates until the unemployment rate falls below 5½ percent, as long as the medium-term inflation outlook stays
below 2¼ percent. But we have not said we will necessarily raise the fed funds rate when those
conditions aren’t met. We’ve only said that we will have a serious policy conversation about
raising the fed funds rate at that point.
I guess that leads to a follow-up question. In your Ironwood speech, you also said that if a threshold is
reached, the FOMC would have a “delicate cost-benefit calculation to make.” And that conversation would
be a “challenging one.”

13

Well, we hope not; if the world is good to us, no. But I think you can imagine circumstances in
which it would be. I’ll talk about the unemployment threshold, for example. Suppose unemployment fell below 5.5 percent to 5.3 or 5.2 percent, while your outlook for inflation is still at
1.6 percent. Certainly, we’ve had shocks to the economy, changes in the economy, where that
configuration doesn’t seem impossible.
Would you necessarily raise the fed funds rate at that stage? I wouldn’t see a need for it myself. Others might have a different view. I think, then, that’s the sense in which you’d want to
have a dialogue about how exactly you want to balance the two mandates against each other.
I think my vision, Doug, was that as long as we’re in this zone defined by the two thresholds, I didn’t really see a tension between the two mandates. I think being a quarter percentage
point above 2 percent—that’s within range of the target even if I were just thinking about that
mandate by itself. And unemployment being anywhere above 5½ percent I thought about as
being too high. So neither mandate was forcing me to raise interest rates in that zone. Once
I got out of that zone being defined by the two thresholds, then I think it’s less clear how the
Committee would reach its decisions. You’d have to start to think about how you’re weighing
the two mandates against each other.

ARE OBJECTIVES COMPLEMENTS OR TRADE-OFFS?
In past speeches, you’ve referred to each objective in the dual mandate as complementary to the other. But
here you talk about the potential for tension between them, a trade-off, like the Phillips curve. How do you
reconcile that seeming discrepancy? Are the objectives complementary or alternatives, trade-offs?

I think that it depends on the nature of the shocks that hit the economy. The FOMC has said
that it typically sees the two mandates as being complementary.6 That’s because it sees most
shocks to the economy as being shocks to the demand for goods and services, not the supply of goods and services. Downward shocks to demand lead to downward pressures in both
employment and prices. To keep inflation close to target after such a shock, you’d need to ease
monetary policy. But by doing so, you’d automatically be mitigating the adverse consequences
of the shock for employment. It’s in this sense that the two mandates are typically complementary. And that is exactly why I would suggest that right now we do not have a tension between
the two mandates.

PERCEPTION THAT YOUR VIEWS HAVE DRAMATICALLY
SHIFTED
We’ve talked a lot about your Ironwood proposal. Let me ask you about public reaction to your position.
People were surprised by that, a bit shocked really, in the sense that you seemed to have changed your view

14

EVOLUTION
OF THE DATA HAS LED ME TO PUT

LESS WEIGHT

ON STRUCTURAL

FACTORS
THAN I DID EARLIER IN 2012

quite significantly, and fairly quickly. In speeches as recent as April 2012, and in various interviews, you had
strongly advocated a position of tighter monetary policy. But in Ironwood, your view had changed to a position of easing policy, providing more monetary accommodation.
Did that public reaction surprise you? And I guess more importantly, how do you respond to that perception that your view had shifted significantly?

In some ways, yes, I was surprised.
I was surprised by the reaction in the sense that I felt I was putting a lot of weight on the
price stability mandate by suggesting that even an inflation outlook—medium-term outlook,
two-year outlook—that is a quarter percentage point higher than 2 percent should be viewed
as a cause for concern. I’m not saying we’re going to raise rates at that point, just to be clear. But
I’m saying it’s a time to consider raising rates.
I felt that I was actually being highly respectful of the price stability mandate, and properly
so. With that said, I think it is true that to suggest that unemployment could get as low as 5½
percent without pushing inflation above 2¼ percent, that was a change in my thinking relative
to where I was in April. That change in my thinking came just because of the data on inflation
and reading a ton of work that had been done on the factors generating high unemployment.

15

FOMC PARTICIPANTS
MAY HAVE DIFFERENT VIEWS

BUT THE ESSENCE OF WHAT

ENSURES
CREDIBILITY

AND CONSISTENCY
IS THAT WE’RE ALL WORKING TOGETHER, ON THE

SAME PAGE
TO ACHIEVE THOSE OBJECTIVES
OF KEEPING INFLATION AT 2 PERCENT

AND PROMOTING MAXIMUM EMPLOYMENT

EVOLUTION OF VIEWS
Why don’t we move to that process, then, and discuss how and why your views evolved from 2011.

Sure. In its January 2012 long-run goals and strategy statement, the FOMC said that its goal
over the longer run is to maintain 2 percent inflation.7 In the beginning of this year, I was
concerned that the stance of monetary policy was sufficiently accommodative that it would
push us noticeably above that over the next year or two. A lot of that thinking was driven by
what I saw in the labor market and my concerns about structural impediments to decreases in
unemployment, to the (pre-crisis) levels of, say, 2007.
What do you mean by “structural impediments”?

That’s a good question. I think one aspect of it has been the issue of whether or not the kinds of
workers are available that firms want to hire. So “job mismatch,” as it’s called—that’s one aspect of it.

16

Another aspect, though, is that firms will cut back on hiring if they are very worried about
increases in the future costs of workers—increases that could be driven by future taxation or
future regulation. Trying to mitigate that kind of fall in employment using monetary policy
will lead to inflation.
Monetary policy can’t have an impact on structural impediments?

It’s that the trade-offs between inflation and unemployment become ones that are much
less desirable. It would take a lot bigger increase in inflation to generate a desired fall in
unemployment.
What changed your perception of the importance of structural unemployment?

I gave a speech about structural unemployment in August 2010 in which I pointed to the shift
in the “Beveridge curve.” 8 This is a plot of unemployment and vacancies over time. It has shifted outward, meaning that, roughly speaking, it looks like firms are having a surprisingly hard
time filling their job openings given how many people are looking for jobs. There are other
interpretations of this, though, as there always are in economics. So, I laid out my concerns
about that shift in August 2010. That shift is still there in the data.
But what’s changed since August 2010 is that there’s been a lot of research trying to parse out
what is responsible for this shift. That work goes through a number of factors. It’s summarized
in a paper that Professor Edward Lazear gave at the Kansas City Fed’s Jackson Hole Conference
earlier this year [2012].9 As a Fed president, I was already aware of a lot of that work because
much of it has been done within the [Federal Reserve] System.
What this work usually does is look, factor by factor, at how much unemployment is caused
by each structural factor. Generally, the answer is not a lot. You can get to maybe a percentage
point, or point and a half, of the increase in unemployment since 2007, due to structural factors, something like that.
Those studies were very important in shaping my thinking. Another thing that happened
was that inflation over the course of 2012 came in considerably lower than I had anticipated.
Both of those things mattered in shaping how I thought about inflation going forward.
I should be clear—it’s not that I used to think structural factors were the sole source of elevated unemployment, and now I think they don’t matter. It’s more nuanced—the evolution of
the data has led me to put less weight on structural factors than I did earlier in 2012.

CHANGING AND CONFLICTING FOMC VIEWS
You’ve clearly changed your view over time. Other Fed leaders have as well. This past Friday [Nov. 13, 2012],
and earlier, different Fed presidents and FOMC participants were changing and clarifying their positions.

17

FORWARD GUIDANCE
IS AN ATTEMPT TO USE WORDS

TODAY
TO DESCRIBE WHAT

YOUR ACTIONS
ARE LIKELY TO BE IN THE

FUTURE
Several of them voiced support for thresholds. Others are strongly opposed to thresholds and/or greater
quantitative easing.
Does FOMC credibility suffer when its members shift their positions or when there’s public discord
among them? And does it raise concerns, do you think, that policy won’t be consistent over time, which in
itself can undermine policy effectiveness?

I think that there’s no problem as long as participants are clear about how their policy recommendations/choices will allow the FOMC to achieve its desired outcomes, and that we all have
a collective understanding of what those desired outcomes are.
It’s true that different participants may have different views about the level of structural
employment, for example. That’s why you have 19 people in a meeting room—to bring those
different visions to bear.
But the essence of what ensures credibility and consistency is that we’re all working together, on the same page, to achieve those objectives of keeping inflation at 2 percent and promoting maximum employment. If everyone’s working toward that, then I don’t think there’s any
reason for the public to worry about inconsistency.
But conflicting participants’ public statements from one FOMC meeting to the next—is that a concern?

18

Again, I’d say that there’s no problem if some participants stand up and say, “I think inflation’s
going to run up above 2 percent if we keep on this same path, and we should be scaling back
on monetary accommodation,” or others say, “Boy, I think inflation’s going to be running at
1 percent; we have to be adding accommodation.” Or they’re talking about the employment
mandate in the same way. This is showing that we all have the same objectives. We’re all working toward the same goals.
There would be a problem if we were trying to achieve different goals than the ones we’ve
stated as our long-run objectives. But it could well be that we’re led to different views about
how to achieve those goals, because we have different views about what factors are affecting the
economy. And that’s life. I mean, that’s why we have 19 people at the table. But those 19 people
should be on the same page about what we’re trying to achieve as a committee.

RISKS TO STATE-CONTINGENT THRESHOLDS?
Obviously, one of the concerns about greater monetary accommodation is possibly fueling inflation. I gather
you don’t agree with that concern.
Are there other possible risks to state-contingent forward guidance? And maybe we should talk about
that term “forward guidance” later.

I have a great set of policy advisers here in Minneapolis, and we’ve talked a lot about the potential costs of a state-contingent forward guidance policy. It’s very hard for us to come up
with anything, given that you’re laying out inflation protections and unemployment thresholds—you protect yourself on both sides. It’s been hard for us to come up with anything on
that dimension.
Now, I guess people wonder about the effectiveness of laying out forward guidance along
these lines. Will it help stimulate the economy? And I think the Fed is always engaged in forward guidance. Suppose for example …

EXPLAINING FORWARD GUIDANCE
Let me step back a bit.

Sure.
This is really about explaining the term “forward guidance.” The last slide of your Ironwood speech says:
“The Fed should clearly communicate its intention to pursue policies that are fully supportive of much higher
levels of economic activity.” Would such a statement be considered “forward guidance”—a very deliberate
strategy to manage public expectations about future policy? How would you explain “forward guidance”?

19

WE WERE ALWAYS ENGAGED IN

FORWARD GUIDANCE USING

OUR INTEREST RATE MOVES

COMBINED
WITH OUR WORDS
NOW WE’RE USING

WORDS

ALONE
THAT’S THE ONLY DIFFERENCE

I think forward guidance is an attempt to use words today to describe what your actions are
likely to be in the future.
And how does that, in and of itself, stimulate the economy?

Let me give an example, and just for the sake of simplicity, I’ll use a trigger statement rather
than a threshold statement—not “we’ll consider taking a certain action,” but rather “we will
pull the trigger.”
One possibility is to say to the public, “We’re going to raise rates above their current extraordinarily low level as soon as unemployment gets to 7 percent.”
The other possibility is to say, “We’re going to raise rates when unemployment hits 5½
percent.”
Those are the two possibilities. The first plan for interest rates tells the public that the FOMC

20

is going to start to choke economic activity as soon as unemployment hits 7 percent. After all,
that’s the whole point of raising rates—to dampen down economic activity. The other possibility is that they’ll wait to an unemployment rate of 5½ percent before beginning to dampen
down economic activity.
Upon hearing those two different plans for interest rates, people should have different expectations for what the paths of economic activity and unemployment are going to be. And, in
particular, between the 7 percent plan and the 5½ percent plan, the second suggests that times
are going to be better for them in general, going forward. It means that individuals don’t need
to save as much for bad times ahead. That’s the basic point of providing such forward guidance,
to convey the expectation that because times will be better in the future, individuals don’t need
to save as much and therefore can spend more now.
That’s what stimulates economic activity.

That’s what stimulates economic activity. I think it’s really important to understand that we
are always engaged in forward guidance. If we were to raise interest rates at the next meeting
by 25 basis points, a rise in one-day interest rates by a quarter percentage point, that would
have enormous consequences for markets and the way people are thinking about spending, et
cetera.
Why is that? Not because they think that quarter-percentage-point move really has any
impact on their decision-making right now. It’s because it tells them something about what
we’re going to do in the future. It’s the path of what they think is going to happen based on that.
We were always engaged in forward guidance, using our interest rate moves combined with
our words. Now we’re using words alone. That’s the only difference.

SUPPORT FOR FORWARD GUIDANCE
So, you’ve long supported the idea of forward guidance, simply as inherent to monetary policy.

Yes.
But now you’re changing your view about the type of forward guidance that should be provided—from
guidance through words regarding calendar dates to words regarding economic thresholds.

I’ve always been sympathetic to the threshold idea since President [Charles] Evans of the Chicago Fed first laid it out in September of 2011.10 And I think that any economist would say
that the idea of using economic conditionality as a way to express a likely plan of attack in the
future is preferable to using calendar dates.
But I would say two things about President Evans’ plan. I didn’t necessarily like his num-

21

QUANTITATIVE

EASING
WORKS IN THE RIGHT DIRECTION

BUT GAUGING ITS IMPACT

REMAINS CHALLENGING

FORWARD
GUIDANCE
IS THE MORE TRADITIONAL TOOL

bers, and so I’ve come to my own choice of what I think the numbers should be. And, as I’ve
described earlier in our conversation about the evolution of my thinking on the stance of
policy overall, I now see a need for stimulus that I did not see in September 2011.

QUANTITATIVE EASING
You mentioned quantitative easing earlier. How effective has it been, and is forward guidance an alternative
to QE or do they work in concert? What’s the nature of that relationship?

In a speech at Jackson Hole this past August, Chairman [Ben] Bernanke provided an excellent
assessment of the effectiveness of quantitative easing.11 I think what you take away from his remarks is that, directionally, quantitative easing has the impact of pushing down on longer-term
interest rates. And that should be directionally stimulative to the economy because by pushing

22

down on market interest rates, people are led to think, “Hmm, maybe I shouldn’t be buying
those assets that are paying such a low yield. I should spend money instead.”
With that said, these impacts are very complicated compared to forward guidance. Forward
guidance is a much more typical way for us to do monetary policy. It’s basically telling the public about the path of future short-term interest rates. How we’re able to influence longer-term
interest rates using QE—well, it’s actually much more sophisticated to see how that works, in
terms of the economic mechanisms involved.
The benchmark thinking about QE, actually, was done by Neil Wallace and later by Gauti
Eggertsson and Mike Woodford, following up on Neil’s work.12 And that baseline economic
modeling would say these kinds of interventions should have no impact on yields and no impact on the economy at all.
Now, the empirical work that I mentioned has validated that there does seem to be an impact on yields. What that means in terms of the impact on economic activity, I’m still sorting
through, to be honest. As of now, I would say that I think quantitative easing works in the right
direction, but gauging the actual magnitude of its impact remains challenging.
Really, forward guidance is the more traditional tool for monetary policy, and quantitative
easing is more unconventional. But with all that said, they work together very well. In particular, being clear about when we’re likely to start raising rates gives very important information
about how long we’re likely to hold any assets we purchase. That’s critical in how effective
they’re going to be in terms of stimulating the economy. If we buy assets and hold them for a
day, they are not having any impact on the economy. If we buy assets and hold them for three
years, yes, they can start to have an impact on the economy.

OTHER POLICY OPTIONS
Other economists have proposed intentional policies to raise the rate of inflation, basically to make spending in the future more expensive and thereby encourage stimulative spending now. Is this idea consistent
with a liftoff plan that could raise the potential inflation rate to 2¼ percent?

As long as unemployment is remaining above 5½ percent, it’s going to be very challenging to
actually deliver on the rates of inflation that some observers have mentioned. You see people
talking about 3, 4, 5, 6 percent. If unemployment is above 5½ percent—well, this depends
on your view of structural unemployment, of course—but given the FOMC’s forecast that it
expects long-run unemployment to fall to between 5 and 6 percent, and that unemployment
rate to be consistent with our long-run target of 2 percent inflation, it’s going to be very challenging to generate high inflation, 3 to 4 percent kind of numbers, as long as unemployment
stays above 5½ percent.
Basically, given current measures of structural unemployment and long-term inflation expectations, we can’t get a medium-term inflation outlook of 3 percent or 4 percent unless the

23

unemployment rate has fallen noticeably below 5 percent. I don’t think such a monetary policy is
believable. In other words, I’m confident that if unemployment starts to get that low, the FOMC
would want to tighten to rein in inflation well before the medium-term outlook rose to 3 percent.

RAISING CONSUMPTION TAXES
You’ve spoken in past speeches regarding the idea of raising future consumption taxes, a proposal essentially intended to make future spending more costly and thereby encourage current spending.13 Is that idea,
a fiscal policy really, consistent with a liftoff plan idea? And in fact, is there a need to coordinate monetary
policy with fiscal policy, assuming there’s a possibility of doing that?

I think what we have seen in Japan and in the United States is that when you get to the zero
lower bound for interest rates, it’s more challenging for the monetary authority to provide stimulus. Typically, that’s why the interest rate is at zero; we’d like to push it down further and can’t.
That should be a signal to the fiscal authority to be more interventionist in the economy
than it would otherwise be. The consumption tax idea that I’ve talked about is certainly not my
idea alone. Bob Hall and Susan Woodward have talked about this, and Martin Feldstein has.
And there’s the work done here on it by Juan Pablo Nicolini with some co-authors.14 That idea
seems like an eminently sensible way to stimulate the economy using fiscal policy.
And there are other ideas, too, but my point is mainly that the monetary authority, which I
think plays a very useful role in stabilizing the economy typically, when the economy faces the
zero lower bound, it doesn’t mean central banks are out of weapons. They do still have tools.
But it does mean that they’re not going to be as effective as they typically would be. And I think
that should be a signal to the fiscal authority. I don’t know if you want to call that coordination,
but I’d like to think they’re watching what we’re doing with interest rates, and they should be
helping us out at that point.
What I mean by helping us out is they should be taking steps to enable us—we’re going to
have a harder time achieving our congressionally mandated goals of 2 percent inflation and
low unemployment. They should be providing policy support of some kind to allow us to better achieve those objectives, which they clearly think of as being important. That’s why they
set them out for us.

OUT OF POLICY TOOLS?
Some observers noted that when Vice Chair Janet Yellen gave her speech recently in support of thresholds
…15

It was an excellent speech.

24

It was; it really was. … But some economists noted that stock markets barely moved after the speech.
And they suggested that, that seemed to indicate that perhaps the Fed had no more power, no more “dry
powder,” in a sense. As one blogger put it, “If the economy stumbles, will the Fed pull a new trick out of its
policy bag, or is that bag finally empty?”

I’ll say two things; one I just mentioned. I think that the Fed’s tool kit is not as—we would prefer to reduce interest rates further; I think that would be the most natural way for us to try to
stimulate the economy, to achieve our objectives. We would like to lower interest rates further
than the zero we’re currently at. With that said, we still do have tools.
Vice Chair Yellen used a threshold of 6½ percent in her speech. I don’t think that the stock
market reaction to 6½ percent reveals much about how it would react to 5½ percent.

A COLLECTIVE OUTLOOK
One other question occurred to me. In a speech that you gave in Great Falls in October, you said your proposed operational definition of price stability hinges on the Committee’s formulating and communicating a
quantitative collective outlook.16 Do you see that as a possibility?

Certainly, conversations continue on that kind of topic. I think Vice Chair Yellen made clear
in her speech that that’s something we continue to talk about. I think it would be very valuable
for us to formulate a collective vision of how we’re doing. That’s essentially what that would be:
a collective vision of how we’re doing in terms of our goals. Does the Committee think inflation is going to be at 2 percent over the next two years? If not, why aren’t they doing something
about it? Do they think unemployment is going to be higher than its long-run values over the
next two years? If so, why aren’t they doing something about it?
I think having a collective sense of that, in a quantitative way, would lead to more accountability on the part of the FOMC.

25

THE BEAUTY
OF THRESHOLDS
IS THAT EVEN WHEN THEY STAY FIXED

THE LEVEL OF ACCOMMODATION

OF MONETARY POLICY

STIMULUS

ASSOCIATED WITH THEM

VARIES

WITH THE STATE OF THE ECONOMY

xx

DECEMBER INTERVIEW
WHAT LED TO FOMC THRESHOLD ADOPTION?
Doug Clement: Well, a lot has happened since our last conversation.
Narayana Kocherlakota: Yes, indeed.
And first and foremost, at its December 2012 meeting, the FOMC as a whole adopted thresholds for inflation and unemployment. The numbers are different from those you laid out in your Ironwood speech, but the
strategy is consistent. Do you view this as a change in policy or as a change in communication, a recasting
of forward guidance?

I think it is a change in communication. If you go back to the October statement, it said that
the FOMC anticipated keeping interest rates extraordinarily low at least through mid-2015.
And now, instead, the FOMC has replaced that date with thresholds for unemployment and
inflation, saying that it anticipates that it’ll keep interest rates extraordinarily low until unemployment falls below 6½ percent as long as what I’m going to call the medium-term outlook
for inflation—one to two years out—that medium-term outlook remains below 2½ percent.
Now, there’s a sense in which that’s an equivalent level of accommodation to the mid-2015
date. It’s equivalent in the sense that right now I would say the Committee roughly expects
that we will get to 6½ percent unemployment around mid-2015. The statement has that rough
equivalence in it. Going forward, I would anticipate we would drop any reference to dates at all
and only maintain this language about the thresholds.17
Now, the beauty of thresholds, as the Chairman noted in his press conference, is that even when
they stay fixed, the level of accommodation, of monetary policy stimulus associated with them, varies
with the state of the economy. He used the language “automatic stabilizer,” which I think is very apt.18
So if things were to worsen for some reason, if conditions were to evolve less favorably than
we expect in 2013 or 2014, well, then, it’s going to take longer, and people are going to realize
it’s going to take us longer to get to 6½ percent unemployment than we think right now. And
that means interest rates are going to stay low for longer.
On the other hand, if conditions evolve more favorably than we expect in 2013, 2014, we’re
going to get to 6½ percent unemployment. People will start to learn: We’re going to get to 6½
percent unemployment more rapidly than anticipated. And they’ll learn that interest rates are
going to be raised sooner than they had anticipated.
I think that’s the benefit, even though it’s roughly the same level of accommodation right
now. You can leave these numbers fixed, and the level of stimulus is varying automatically with
the evolution of the economy in a way that we would like.

27

IT’S JUST A VERY HEALTHY WAY OF

COMMUNICATING
I THINK IT

ENHANCES
TRANSPARENCY
ACCOUNTABILITY
& EFFECTIVENESS
OF POLICY

So people will be focused on the state of the economy rather than the calendar.

Yes. The calendar date relies on the Fed’s forecast, and that’s going to be changing over time.
With this new approach, we tell the public how we’re looking at the economy and they form the
forecast about when we’re likely to get there. Then that shapes their thinking about our policy.
It’s just a very healthy way of communicating. I think it enhances transparency, accountability
and effectiveness of policy.
What led to threshold adoption by the full FOMC? Could you trace the FOMC’s evolution in terms of moving
to communicating policy through explicit economic conditions rather than calendar dates?

So, in December of 2008, the Committee lowers interest rates to their current level, with the
fed funds rate being targeted to a zero to 25 basis point band, about as low as it can go.19 I
believe it was in March of ’09 when the Committee said that it anticipated keeping rates extraordinarily low for an extended period.20 This is an attempt to provide some guidance to say
it’s not just this meeting, it’s not the next meeting, where you might expect interest rates to rise.

28

In August of 2011, the Committee became more concrete about that, switching from talking
about an “extended period” to instead saying that the fed funds rate would stay extraordinarily
low at least through mid-2013.21 And then there was some evolution in the date after that.
I would say that there was some unhappiness with the date almost immediately. And, right
after that August meeting, President Evans offered a different approach to formulating in terms
of thresholds.22 There was a lot of analysis of that approach after he made his suggestion.
Basically, you want to put some thought into it that it’s going to work the way you want it to.
The way you can do that is through model-based analysis, study, et cetera, and that was what
was going on over that time frame.
I think the Chairman noted in his press conference that this was a difficult change to explain, and a press
conference allowed an opportunity …

Yes, well, we have a press conference every two meetings. I’ve expressed the belief in the past
that the FOMC should consider having a press conference after every meeting. Certainly, I
think that this kind of change in communication is sufficiently rich and complicated that a
press conference is vital.

ARE THE NUMBERS TOO HIGH?
1 2 percent for unemployment and 2.5
1 2 percent for
The thresholds that were set out by the FOMC are 6.5

inflation. Those are somewhat higher than the numbers you mentioned in your Ironwood speech. Are you
concerned that the FOMC thresholds are higher than yours?

On the inflation front, I suggested an inflation threshold of 2¼ percent and the Committee
went to 2½ percent. As I suggested in my speech, I saw this conversation about what the appropriate inflation threshold should be as being very much an ongoing one. I would say my
thinking was still evolving. I’m comfortable with 2½ percent as the outcome of the Committee
discussion. There’s always a give and take in a committee, and we ended up with 2½ percent.
So I guess I think that’s an appropriate place to be.
And unemployment?

I’m more concerned about the unemployment threshold. I think that we have left an opportunity out there for improvement by setting it as high as we did. I think the public is left thinking
that the Committee could well be planning to retard the pace of economic recovery while the
unemployment rate remains noticeably above our long-run estimates.
This dampens current stimulus because people think that times are not going to be as good
as they could be if we had more aggressive policy, more stimulative policy, so they’ll believe

29

CONCERNED ABOUT THE UNEMPLOYMENT THRESHOLD

I THINK THAT WE HAVE LEFT AN

OPPORTUNITY
OUT THERE FOR

IMPROVEMENT
BY SETTING IT AS HIGH AS WE DID
THIS DAMPENS CURRENT STIMULUS

I WOULD HAVE PREFERRED 5 1/2 PERCENT

they have to save now for worse times ahead. That dampens the amount of stimulus we’re going
to provide today. So, I would have preferred 5½ percent.
That opportunity is not one that’s foreclosed to us. What I mean by that is, in terms of the
inflation threshold, I think it would be very challenging for us to lower that now that we’ve set
it where it is. We’ve made a commitment essentially that, barring unusual circumstances, we’re
not going to start to raise rates as long as the inflation outlook remains below 2½ percent. If
you now lower that to 2¼ percent, you change the nature of that commitment.
It’s different with lowering the unemployment threshold. If we were to raise it, we’d face
the same problem, but lowering it is perfectly in keeping with what we’ve said so far. I worry
that we’ll come to a point where we’re going to want to do this later anyway—that is, lower
the unemployment threshold—and we’ll have lost all the stimulus we could have provided in
the intervening period by lowering it ahead of time. So I would have preferred us to go to the
threshold I mentioned in Ironwood: 5½ percent.
You spoke before about wanting to shock or surprise the public, in a sense, with the threshold numbers.

Yes, yes.
Would a lower unemployment number have done that?

30

Yes, I believe so. Based on the reaction to my Ironwood talk, I think the answer is yes to that
[laughter].
No, more seriously, I think that the equivalence we talked about earlier between our earlier
communication of mid-2015 and the 6½ percent unemployment rate meant that while there’s
an automatic stabilizer gain that we’ve talked through, there’s no gain really in the anticipated
path of stimulus. With 5½ percent, you’d get that gain.
Now, I don’t want to be too negative. I mean I’m very heartened by the switch in our basic
communication framework. I think it was the right move. And as I said, I think our communication leaves open the possibility of improving policy by lowering the unemployment threshold. But that is an opportunity for improvement that is out there for the Committee, I think.

“TARGETS?”
I’d like to raise a question about confusion of terms. In media reports following the press conference on
December 12 and at the press conference itself, the media used the term “target” in relation to what the
Chairman clearly referred to as thresholds.
You’ve taken great pains to distinguish “thresholds” from “triggers,” but it seems there’s still confusion
as to whether these numbers for inflation and unemployment are “targets,” implying that the Fed is aiming
1 2 percent and unemployment at 6.5
1 2 percent, as the word “target” implies. Can you clarify
for inflation at 2.5

that point?

I can try [laughter]. Let me talk first about the inflation threshold. Our long-run objective—
our target—for inflation is 2 percent. So what is this 2½ percent about? I view it as a safeguard, a guardrail—protection against what I see as being an unlikely risk of unduly high
inflation.
Over the past 15 years, the medium-term outlook for PCE inflation, personal consumption expenditure inflation, has never risen above 2.3 percent. That’s been true even though
the unemployment rate actually fell below 5 percent. Even though we had such high resource
utilization in the economy that the unemployment rate fell below 5 percent at times during
that 15 years, that wasn’t sufficient pressure on prices to drive the medium-term PCE inflation
outlook above 2.3 percent.
Given how much slack we have currently, how are we going to get to a medium-term outlook of 2½ percent as long as longer-term inflation expectations stay well anchored? So I just
view the inflation threshold as really being a protection. I’m not saying we shouldn’t have it in
there. We should always be making policy with an eye toward protecting the economy against
unlikely adverse outcomes. But it’s only that—a protection to say our medium-term outlook is
never going to get that far out of whack, to the point where people should be starting to worry
about our commitment to the 2 percent long-run target, which is really the key thing.

31

THE INFLATION THRESHOLD

I VIEW IT AS A

SAFEGUARD

A

GUARDRAIL
PROTECTION AGAINST
WHAT I SEE AS BEING AN UNLIKELY RISK OF

UNDULY HIGH INFLATION
OK, so, as you said, it’s a “guardrail,” something that you’re not likely to hit, but just in case …

Right, just in case.
Now, in terms of the unemployment threshold, I guess I understand the possibility of confusion in the sense that I articulated earlier. I thought it would be better policy to set the
unemployment rate threshold lower. If we think the long-run unemployment rate is going to
settle down between 5.2 percent and 6 percent, why would we begin to raise rates when the
unemployment rate is as high as 6.4 percent so that it’s remaining clearly elevated above our
target, the long-run goal for unemployment? Well, “goal” is too strong a term; it’s the place
where we think unemployment is going to settle down, long term.
Right, what the FOMC participants expect will happen.

Now, the only reason I can see where we’d want to raise rates is if we’re worried about inflation.
That’s why we have the inflation safeguard in there.

32

So, I understand the possible confusion on the unemployment threshold. I think if you set
it at 5½ percent, you won’t have that confusion anymore. I think it’s clearly smack dab in the
middle of where the Committee sees the unemployment rate settling down to in the long run.

INITIAL PUBLIC REACTION
Critics of this new FOMC policy have already suggested that thresholds are going to have too little impact,
as evidenced by the fact that the stock markets didn’t move very much after it was announced, long-term
Treasuries rose just a bit and I think expected inflation increased only slightly.
Another critic said that if markets have already discounted the impact of monetary easing on unemployment, that’s an indication that “the expectations effect won’t work.”
And other critics are concerned that inflation has just been unleashed, that thresholds will do too much
in terms of fueling inflationary expectations beyond the control of monetary policy.
What’s your sense of this initial public reaction to the December 12 announcement, which was intended
to stimulate economic activity?

I think that the behavior of inflation expectations is pretty much in keeping with what I would
have anticipated. I think, under current conditions, we have a lot of room to influence economic activity without generating inflation that’s noticeably above 2 percent.
Where does that room come from? It comes from the relationship between resource utilization, unemployment and inflation. As of now, that relationship is relatively flat, meaning that
monetary stimulus can achieve desired reductions in the unemployment rate without generating big movements in inflation. This is the Phillips curve, which in some quarters has a bad
reputation, but that’s how I think of the relationship that emerges at any given moment in time
that’s traced out between resource utilization and inflation.
So I am not surprised by inflation expectations not rising that high. As I pointed out earlier,
in the past 15 years, even though unemployment’s fallen below 5 percent, we still did not have
an inflation outlook that was noticeably above 2 percent.
Now, there’s talk by many observers that monetary easing can’t lower the unemployment
rate. I think that the issue, really, is the opposite. The issue is, does the public think that the
Fed can increase the unemployment rate by raising interest rates? I would submit the answer
to that is yes. If that’s true, shouldn’t we let the public know that we don’t plan on fostering
unemployment through our policy actions until such time as unemployment has normalized?
That’s what I think this policy is about: letting the public know that we’re not going to get
in the way of the economic recovery by raising rates, until such time as the recovery is closer
to being complete.
Let me say a couple of things about inflation. I think there’s this vision out there—this was
one of the reactions to my 5½ percent number in Ironwood—that somehow we have to raise

33

I UNDERSTAND THE POSSIBLE CONFUSION

ON THE UNEMPLOYMENT THRESHOLD

IF YOU SET IT AT 5.5 PERCENT

YOU WON’T HAVE
THAT CONFUSION ANYMORE
I THINK IT’S CLEARLY

SMACK DAB
IN THE

MIDDLE
OF WHERE THE COMMITTEE SEES

THE UNEMPLOYMENT RATE SETTLING

rates before we get to full employment. We have to do it. Otherwise, we’re going to have inflation unleashed.
“Taking away the punch bowl just when the party [is] really warming up,” as the Fed has been said to do.23

But this is dependent on the set of shocks that are affecting the economy. That’s what shapes the
appropriate level of monetary policy: How adverse are the shocks that are hitting the economy?
If the shocks are adverse enough, then you might need a lot of monetary stimulus in order to
offset them so as to keep inflation at 2 percent instead of falling too low.

34

Hoping to keep it as high as 2 percent, avoiding deflation.

As high as 2 percent—and to keep unemployment from being too high. If you say you’re always
going to be raising rates before you get to full employment, you’re defeating yourself. You’re
tying your hands behind your back.
What determines where we should be in terms of monetary policy is that we want to be
doing our best to mitigate and offset the shocks that face the economy so as to achieve our
objectives: the long-run objective of 2 percent inflation and keeping unemployment low in the
face of shocks.
Personally, as somebody who’s been termed an inflation “hawk,” a central banker who worries a lot about inflation, I think thresholds are fantastic news. That’s true for two reasons.
First, suppose the pace of recovery were to quicken over the next few months, and we saw
a significant decline in unemployment and significant upticks in inflationary pressures associated with that. That would be the good-news scenario, so to speak. Would the Committee have
been willing to move the mid-2015 date in quickly?
I think there would have been a lot of concerns about doing so. I think there would have
been a concern in the Committee that we would have unraveled all the accommodation in one
fell swoop if we start to move that date in. What would we be communicating? I think it would
be very challenging for us.
Now, with thresholds, even if we do nothing, a fall in the unemployment rate, or an increase
in inflationary pressures, automatically brings forward that first day of tightening. The automatic nature of policy is beneficial if you’re worried that inflation could be going too high.
The other thing is, I think it’s really good for accountability. I think the Committee has
never really clearly marked out a true worry zone for inflation. We haven’t said we’re going to
raise rates when the outlook gets above 2½ percent. For example, I’ll say for myself that if unemployment was 11 percent and the outlook for inflation was at 2½ percent, I might not want
to raise rates at that stage.
But, with that said, we’ve marked out what is clearly a worry zone. And given the history
that I’ve reviewed about the medium-term inflation outlook, it is a worry zone. It’s very different from what we’ve seen in the past.

FUTURE MOVES
You’ve just used the word “automatic” a number of times. That leads me to wonder about future policy
moves given that the policy steps taken at the December meeting—the boost in long-term asset purchases
as well as more explicit forward guidance—were quite significant.
Do you think the FOMC is likely to make further large changes in policy over the next couple of years,
or will it simply be a matter of monitoring economic activity relative to the thresholds? In other words, is

35

UNDER CURRENT CONDITIONS

WE HAVE A LOT OF

ROOM
TO INFLUENCE

ECONOMIC

ACTIVITY
WITHOUT GENERATING

INFLATION
THAT’S NOTICEABLY ABOVE 2 PERCENT

monetary policy essentially on autopilot now? In your view, are thresholds “automatic stabilizers,” as the
Chairman said at the press conference?

I think that the FOMC statement does build a lot of “automaticity,” if that is a word, into monetary policy.
But as I’ve said, I also think that the statement gives us the freedom to do more—for example, by lowering the unemployment threshold.
I really do think this is, I hesitate to use the term “gold standard,” but it’s really leading
edge in terms of central bank communication methods right now. I think we should take a
lot of pride in that. I’ve certainly been surprised by things in the past, but I don’t see us mak-

36

ing changes in our basic communication framework going forward. Nonetheless, I think that
communication framework certainly leaves open the possibility of changes in policy.

CONSENSUS STATEMENT?
Coming back to a question I asked in our first conversation, about a consensus FOMC statement on inflation
expectations and unemployment expectations. According to recent statements by some FOMC members, it
seems that not all foresee the likelihood of, or see the value in, a consensus statement. Do you still consider
it a useful thing?

Oh, I think we’re going to have a consensus statement. Let me be clear by what I mean by that
though. I think the Chairman answered this question in his press conference. He said specifically that we’re going to have to go through the intellectual exercise. Actually, I have it right
here: “In terms of inflation forecasts, what the Committee will do on a regular basis is include
in its statement its views of where inflation is likely to be …”
That’s exactly what I had in mind. “For example,” he continued, “currently we already say
that, you know, we expect inflation to run at or below the Committee’s objective in the longer
term. The intellectual exercise we’ll be doing is asking ourselves, if we maintain low rates along
the lines suggested by this policy, would we expect inflation to cross the threshold or reach
that—reach that level?”
That’s it. That’s exactly what I had in mind by a consensus outlook: The Committee offers
guidance about it, and has to, given the formulation of policy. So, I’m comfortable where we
ended up on that, given what the Chairman said.

37

ENDNOTES
1

Personal consumption expenditure (PCE) inflation is a measure of inflation based on the rate of price appreciation

of all goods and services, including those related to food and energy.
2

See Kocherlakota (2012a).

3

The FOMC first adopted date-based guidance in August 2011.

4

In its September and October 2012 FOMC statements, online at federalreserve.gov/newsevents/press/

monetary/2012monetary.htm.
5

January 2012 FOMC long-run goals and strategy statement, online at federalreserve.gov/newsevents/press/

monetary/20120125c.htm.
6

See the January 2012 long-run goals and strategy statement, online at federalreserve.gov/newsevents/press/

monetary/20120125c.htm.
7

See the January 2012 long-run goals and strategy statement, online at federalreserve.gov/newsevents/press/

monetary/20120125c.htm.
8

See Kocherlakota (2010a).

9

See Lazear and Spletzer (2012).

10

See Evans (2011).

11

See Bernanke (2012).

12

See Wallace (1981) and Eggertsson and Woodford (2003).

13

See Kocherlakota (2010b).

14

See Woodward and Hall (2008), Feldstein (2002) and Correia, Farhi, Nicolini and Teles (2012).

15

See Yellen (2012).

16

See Kocherlakota (2012b).

17

The FOMC did take this step in January. See the press release at federalreserve.gov/newsevents/press/

monetary/20130130a.htm.
18

See the press conference at federalreserve.gov/monetarypolicy/fomcpresconf20121212.htm.

19

See the press release at federalreserve.gov/newsevents/press/monetary/20081216b.htm.

20

See the press release at federalreserve.gov/newsevents/press/monetary/20090318a.htm.

21

See the press release at federalreserve.gov/newsevents/press/monetary/20110809a.htm.

22

See Evans (2011).

23

See the Address of Wm. McC. Martin, Jr., chairman, Board of Governors of the Federal Reserve System, before the

New York Group of the Investment Bankers Association of America, Waldorf Astoria Hotel, New York City, Oct. 19,
1955. Online at fraser.stlouisfed.org/docs/historical/martin/martin55_1019.pdf.

38

THIS POLICY IS ABOUT
LETTING THE PUBLIC KNOW

WE’RE NOT GOING TO

GET IN THE WAY
OF

RECOVERY
BY

RAISING RATES
UNTIL RECOVERY IS
CLOSER TO BEING COMPLETE

xx

REFERENCES
Bernanke, Ben S. 2012. Monetary Policy since the Onset of the Crisis. Speech at the Federal Reserve
Bank of Kansas City Economic Policy Symposium, Jackson Hole, Wyo., Aug. 31.
federalreserve.gov/newsevents/speech/bernanke20120831a.htm
Correia, Isabel, Emmanuel Farhi, Juan Pablo Nicolini and Pedro Teles. 2012. Unconventional Fiscal
Policy at the Zero Bound. Working Paper 698. Federal Reserve Bank of Minneapolis.
minneapolisfed.org/publications_papers/wp/
Eggertsson, Gauti, and Michael Woodford. 2003. The Zero Bound on Interest Rates and Optimal Monetary Policy. Brookings Papers on Economic Activity 34 (1): 139-235.
Evans, Charles. 2011. The Fed’s Dual Mandate Responsibilities and Challenges Facing U.S. Monetary
Policy. Speech at the European Economics and Financial Centre, London, Sept. 7.
chicagofed.org/webpages/publications/speeches/2011/09_07_dual_mandate.cfm
Feldstein, Martin. 2002. Commentary: Is There a Role for Discretionary Fiscal Policy? Commentary at
Rethinking Stabilization Policy, a Symposium Sponsored by the Federal Reserve Bank of Kansas City,
Jackson Hole, Wyo., Aug. 29-31.
kansascityfed.org/publications/research/escp/escp-2002.cfm
Kocherlakota, Narayana. 2010a. Inside the FOMC. Speech in Marquette, Mich. Aug. 17.
minneapolisfed.org/news_events/pres/
Kocherlakota, Narayana. 2010b. Monetary Policy Actions and Fiscal Policy Substitutes. Speech at the
National Tax Association’s 103rd Annual Conference on Taxation, Chicago, Nov. 18.
minneapolisfed.org/news_events/pres/
Kocherlakota, Narayana. 2012a. Planning for Liftoff. Speech at Gogebic Community College, Ironwood,
Mich., Sept. 20.
minneapolisfed.org/news_events/pres/
Kocherlakota, Narayana. 2012b. More Thoughts on a Liftoff Plan. Speech at Annual Helena Branch
Board of Directors Meeting and Community Luncheon, Oct. 10.
minneapolisfed.org/news_events/pres/
Lazear, Edward P., and James R. Spletzer. 2012. The United States Labor Market: Status Quo or a New
Normal? Paper presented at the Federal Reserve Bank of Kansas City Economic Policy Symposium,
Jackson Hole, Wyo.
kansascityfed.org/publicat/sympos/2012/el-js.pdf
Wallace, Neil. 1981. A Modigliani-Miller Theorem for Open-Market Operations. American Economic
Review 71: 267-74.
Woodward, Susan, and Robert Hall. 2008. Measuring the Effect of Infrastructure Spending on GDP.
Financial Crisis and Recession blog, Dec. 11.
woodwardhall.wordpress.com/2008/12/
Yellen, Janet L. 2012. Revolution and Evolution in Central Bank Communications. Speech at the Haas
School of Business, University of California, Berkeley, Berkeley, Calif., Nov. 13.
federalreserve.gov/newsevents/speech/yellen20121113a.htm

40

FEDERAL RESERVE BANK

2012
OF MINNEAPOLIS

OPERATIONS REPORT

xx

MESSAGE FROM THE
FIRST VICE PRESIDENT
The Federal Reserve System continues to face a
complex and dynamic outlook as it fulfills its mission
to foster the stability, integrity and efficiency of the
nation’s monetary, financial and payments systems.
To achieve this mission, the Federal Reserve
sets the nation’s monetary policy, supervises and
regulates banking institutions, and provides financial services to depository institutions, the
U.S. government and foreign official institutions. The Federal Reserve Bank of Minneapolis
leverages its strengths in order to make important System contributions while at the same time
pursuing financial and operational strategies directed at ensuring that all Bank and System
objectives are met efficiently and with high quality.
The Bank has consistently achieved outstanding operating results, and 2012 was no exception. We managed our expenses effectively, maintained a strong internal control environment and met most operating metrics. The accompanying “2012 by the Numbers” highlights
the scope of some of the Bank’s operations and the importance of excellence in conducting
our operations. In a variety of areas, such as the FedACH, the Customer Contact Center and
the National Service Desk, we have operational responsibilities that support the System more
broadly. In a similar vein, as the Federal Reserve Treasury Retail Securities site, we support
the Bureau of the Public Debt’s retail program by servicing electronic and paper U.S. Savings
Bonds, and Treasury marketable securities. Managing these consolidated operational responsibilities requires effective coordination and collaboration with stakeholders beyond our Bank.
Technological change creates opportunities for greater efficiency, and the System continues
to refine, reorganize and consolidate its operations to take full advantage of these opportunities.
We are engaged in several multiyear IT initiatives, including the consolidation of our server
and network infrastructure, the upgrade of our desktop computers and the strengthening of
our information security infrastructure. Change also continues in the Bank’s FedACH and
Treasury Retail Securities operations as a result of technology advances, marketplace dynamics
and evolving business plans.
For the System’s supervision and regulation area, assuming expanded responsibility

44

2012
BY THE NUMBERS
IN 2012
THE FEDERAL RESERVE BANK
OF MINNEAPOLIS PROCESSED
n 12.3 billion ACH (Automated Clearing House) payments worth approximately
$24 trillion. FedACH is a nationwide system, developed and operated by Minneapolis
staff on behalf of the entire Federal Reserve System, which provides the electronic
exchange of debits and credits.

n $10.8 billion of currency deposits from financial institutions, destroyed $2.8
billion of worn and torn currency and shipped $12.6 billion of currency to financial
institutions.
n 178,000 transactions for the 56 million investors who hold $177 billion in U.S.
Savings Bonds and answered 577,000 calls and written inquiries from investors as
the Treasury Retail Securities site for the Federal Reserve System.
n 250,000 customer support calls handled and 26,000 credentials issued for Federal
Reserve payment and information services as one of two national Customer Contact
Centers.
n 312,500 calls answered and 324,600 tickets created by the National Service
Desk; Minneapolis is one of two sites that provide frontline IT support for the Federal
Reserve System.

xx

pursuant to the Dodd-Frank Act as systemic risk regulator, supervisor of thrift holding
companies and supervisor of systemically important financial market utilities has required
significant additional resources. Evolving regulatory and supervisory frameworks require
increased emphasis on the analysis and review of financial organizations’ risk profiles. In this
regard, the Bank has engaged in a multiyear initiative to strengthen the analytical and technical
skills of staff in order to address these new demands.
The Bank’s Office of Minority and Women Inclusion established under Section 342 of the
Dodd-Frank Act continues its work to ensure equal opportunity and racial, ethnic and gender
diversity in our workforce and senior management, and the participation of minority- and
women-owned businesses in our procurement activities. These efforts reinforce the Bank’s longstanding and ongoing commitment to diversity and inclusion in our workforce and suppliers.
Another area of ongoing emphasis is the Bank’s outreach efforts. We continue to work with
communities, nonprofit organizations, lenders, educators and others in the district and across
the nation to encourage financial and economic literacy, address housing problems, promote
equal access to credit and advance economic and community development. In 2012, we expanded our outreach activities in the district; at the national level, one particularly notable
event was the Indian Country Summit held in Washington, D.C.
In 2012, we expanded our contributions at the System level to policy discussions in a variety
of areas, including monetary policy, supervision and regulation, and financial services. We also
assumed a new responsibility as the System’s Enterprise Content Management Support Office
and will implement technology that will enable System users to better capture, store, preserve
and deliver content and documents.
Looking forward, the System and the Bank will be commemorating 100 years of service with
the signing of the Federal Reserve Act in December 1913 and the chartering of Reserve Banks in
1914. As we look to the future, our employees’ unwavering commitment to our core values will
allow us to successfully address challenges and achieve the System’s mission to foster the stability,
integrity and efficiency of the nation’s monetary, financial and payments systems.

James M. Lyon
First Vice President

46

2012
FINANCIAL STATEMENTS
FEDERAL RESERVE
BANK OF MINNEAPOLIS
federalreserve.gov/monetarypolicy/files/BSTMinneapolisfinstmt2012.PDF
federalreserve.gov/monetarypolicy/bst_fedfinancials.htm

AUDITOR INDEPENDENCE
The Board of Governors engaged Deloitte & Touche LLP (D&T) to audit the 2012
combined and individual financial statements of the Reserve Banks and those of the
consolidated LLC entities.1 In 2012, D&T also conducted audits of internal controls over
financial reporting for each of the Reserve Banks, Maiden Lane LLC, Maiden Lane III
LLC, and TALF LLC. Fees for D&T’s services totaled $7 million, of which $1 million was
for the audits of the consolidated LLC entities. To ensure auditor independence, the
Board requires that D&T be independent in all matters relating to the audits. Specifically D&T may not perform services for the Reserve Banks or others that would place it
in a position of auditing its own work, making management decisions on behalf of the
Reserve Banks, or in any other way impairing its audit independence. In 2012, the Bank
did not engage D&T for any non-audit services.
1

In addition, D&T audited the Office of Employee Benefits of the Federal Reserve System (OEB), the Retirement Plan

for Employees of the Federal Reserve System (System Plan), and the Thrift Plan for Employees of the Federal Reserve
System (Thrift plan). The System Plan and the Thrift Plan provide retirement benefits to employees of the Board, the
Federal Reserve Banks, and the OEB.

xx

FEDERAL RESERVE BANK

2012
OF MINNEAPOLIS

DIRECTORS

ADVISORY COUNCILS
SENIOR MANAGEMENT

OFFICERS

xx

2012 HELENA BRANCH
BOARD OF DIRECTORS

DUANE
KUROKAWA

DAVID
SOLBERG

THOMAS
SWENSON
JOSEPH
MCDONALD
TIMOTHY
BARTZ

DAVID SOLBERG, CHAIR

JOSEPH MCDONALD, VICE CHAIR

FEDERAL ADVISORY
COUNCIL MEMBER

TIMOTHY BARTZ
CHAIRMAN
ANDERSON, ZURMUEHLEN & CO. PC
HELENA, MONTANA

DAVID SOLBERG
OWNER
SEVEN BLACKFOOT RANCH CO.
BILLINGS, MONTANA

DUANE KUROKAWA
PRESIDENT
WESTERN BANK OF WOLF POINT
WOLF POINT, MONTANA

THOMAS SWENSON
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
BANK OF MONTANA AND
BANCORP OF MONTANA HOLDING CO.
MISSOULA, MONTANA

JOSEPH MCDONALD
PRESIDENT EMERITUS
SALISH KOOTENAI COLLEGE
RONAN, MONTANA

xx
50

RICHARD K. DAVIS
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
U.S. BANCORP
MINNEAPOLIS, MINNESOTA

PHOTOGRAPHY: PAGE 50 STAN WALHAUSER, PAGES 51–55 NIEDORF VISUALS

2012 MINNEAPOLIS
BOARD OF DIRECTORS
RICHARD
WESTRA

WILLIAM
SHORMA
RANDALL
HOGAN

KENNETH
PALMER

MARY
BRAINERD

LAWRENCE
SIMKINS

HOWARD
DAHL
JULIE
CAUSEY

MAYKAO
HANG

MARY BRAINERD, CHAIR

RANDALL HOGAN, DEPUTY CHAIR

CLASS A DIRECTORS

CLASS B DIRECTORS

CLASS C DIRECTORS

(ELECTED BY MEMBER BANKS TO REPRESENT MEMBER BANKS)

(ELECTED BY MEMBER BANKS TO REPRESENT THE PUBLIC)

(APPOINTED BY THE BOARD OF GOVERNORS

JULIE CAUSEY
CHAIRMAN
WESTERN BANK
ST. PAUL, MINNESOTA

HOWARD DAHL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMITY TECHNOLOGY LLC
FARGO, NORTH DAKOTA

KENNETH PALMER
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
RANGE FINANCIAL CORPORATION
& RANGE BANK N.A.
NEGAUNEE, MICHIGAN

WILLIAM SHORMA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RUSH-CO/STRATEGIC RAIL SYSTEMS SRS
DAKOTA DUNES, SOUTH DAKOTA

TO REPRESENT THE PUBLIC)

RICHARD WESTRA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DACOTAH BANK AND DACOTAH BANKS INC.
ABERDEEN, SOUTH DAKOTA

LAWRENCE SIMKINS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WASHINGTON COMPANIES
MISSOULA, MONTANA

xx

51

MARY BRAINERD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HEALTHPARTNERS
MINNEAPOLIS, MINNESOTA
MAYKAO HANG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMHERST H. WILDER FOUNDATION
ST. PAUL, MINNESOTA
RANDALL HOGAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
PENTAIR INC.
MINNEAPOLIS, MINNESOTA

2012 COMMUNITY DEPOSITORY
INSTITUTIONS ADVISORY COUNCIL

PATRICK
DONOVAN

KEVIN
MANLEY

STAN
KOPPINGER

JERRY
ALTENBURG

GAIL
KRALL

ROGER
HEACOCK

TERRY
LOBDELL

BRIAN
JOHNSON

PETE
JOHNSON

JEFF
FULLERTON

PETE JOHNSON, CHAIR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN FEDERAL SAVINGS BANK
HELENA, MONTANA

JEFF FULLERTON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FIRST WESTERN FEDERAL SAVINGS BANK
RAPID CITY, SOUTH DAKOTA

GAIL KRALL
PRESIDENT
MINNESOTA POWER EMPLOYEES CREDIT UNION
DULUTH, MINNESOTA

JERRY ALTENBURG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FIRST STATE BANK
ARMOUR, SOUTH DAKOTA

ROGER HEACOCK
PRESIDENT
BLACK HILLS FEDERAL CREDIT UNION
RAPID CITY, SOUTH DAKOTA

TERRY LOBDELL
PRESIDENT
COMMUNITY FIRST BANK OF GLENDIVE
GLENDIVE, MONTANA

PATRICK DONOVAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BREMER FINANCIAL CORP.
ST. PAUL, MINNESOTA

BRIAN JOHNSON
CHIEF EXECUTIVE OFFICER
CHOICE FINANCIAL
GRAND FORKS, NORTH DAKOTA

KEVIN MANLEY
PRESIDENT
STATE BANK OF ARCADIA
ARCADIA, WISCONSIN

STAN KOPPINGER
PRESIDENT
AMERICAN BANK CENTER
DICKINSON, NORTH DAKOTA

xx
52

2012 ADVISORY COUNCIL
ON AGRICULTURE

SCOTT
RYSDON

TOM
HEINE
JEFFREY
MISSLING

DALE
ANSON

JOHN
MCDONNELL

DAVID SOLBERG, CHAIR
OWNER
SEVEN BLACKFOOT RANCH CO.
BILLINGS, MONTANA
DALE ANSON
REGIONAL BUSINESS MANAGER
MONSANTO
APPLE VALLAEY, MINNESOTA
PAUL BAUER
CHIEF EXECUTIVE OFFICER
ELLSWORTH CREAMERY
COOPERATIVE
ELLSWORTH, WISCONSIN
JOHN CORDES
OWNER
CORDES CROP INSURANCE
COMSTOCK, WISCONSIN

J OHN
CORDES

JIM
KIELKOPF

DAVID
SOLBERG

PAUL
BAUER

PAT
KLUEMPKE
TERRY
HAGEN

TERRY HAGEN
HAGEN FARMS
ANETA, NORTH DAKOTA
TOM HEINE
OWNER
TOM HEINE CATTLE CO.
YANKTON, SOUTH DAKOTA
JIM KIELKOPF
VICE PRESIDENT
INFORMA ECONOMICS INC.
EAGAN, MINNESOTA
PAT KLUEMPKE
EXECUTIVE VICE PRESIDENT
CHS INC.
INVER GROVE HEIGHTS, MINNESOT A

xx

53

JOHN MCDONNELL
VICE PRESIDENT
CIRCLE S SEEDS
THREE FORKS, MONTANA
JEFFREY MISSLING
EXECUTIVE VICE PRESIDENT
NORTH DAKOTA FARM BUREAU
FARGO, NORTH DAKOTA
SCOTT RYSDON
CHIEF EXECUTIVE OFFICER
SIOUX STEEL COMPANY
SIOUX FALLS, SOUTH DAKOTA

2012 ADVISORY COUNCIL ON SMALL BUSINESS AND LABOR

RUSTY
HOGLUND

WILLIAM
SHORMA
BRETT
RIDDLE

DOUG
MELBY

CARLEEN
SHILLING

ARLON
FRANZ
JIM
PLEWACKI

TONY
RETASKIE
YVONNE
CHEUNG HO

WILLIAM SHORMA, CHAIR
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
RUSH-CO/STRATEGIC RAIL SYSTEMS SRS
DAKOTA DUNES, SOUTH DAKOTA
ROSALIE CATES (NOT PICTURED)
141 KENSINGTON
MISSOULA, MONTANA
YVONNE CHEUNG HO
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
METROPOLITAN ECONOMIC
DEVELOPMENT ASSOCIATION
MINNEAPOLIS, MINNESOTA

ARLON FRANZ
OWNER
FRANZ CONSTRUCTION INC.
SIDNEY, MONTANA

JIM PLEWACKI
CHIEF FINANCIAL OFFICER
BERGQUIST CO.
CHANHASSEN, MINNESOTA

RUSTY HOGLUND
PRESIDENT
SUPERIOR STEEL INC.
SUPERIOR, WISCONSIN

TONY RETASKIE
EXECUTIVE DIRECTOR
UPPER PENINSULA CONSTRUCTION
COUNCIL
ESCANABA, MICHIGAN

DOUG MELBY
RETIREMENT SPECIALIST
HEARTLAND TRUST COMPANY
FARGO, NORTH DAKOTA
PAM OSBORN (NOT PICTURED)
VICE PRESIDENT OF FINANCE
COBORN’S INC.
ST. CLOUD, MINNESOTA
xx

BRETT RIDDLE
CHIEF EXECUTIVE OFFICER
RIDDLE’S GROUP
RAPID CITY, SOUTH DAKOTA
CARLEEN SHILLING
TAX PARTNER
EIDE BAILLY LLP
BISMARCK, NORTH DAKOTA

2012 SENIOR MANAGEMENT
FEDERAL RESERVE BANK OF MINNEAPOLIS

DUANE
CARTER
RON
FELDMAN

LINDA
GILLIGAN

DOROTHY
BRIDGES
JAMES
LYON

NARAYANA R. KOCHERLAKOTA
PRESIDENT
JAMES M. LYON
FIRST VICE PRESIDENT
DOROTHY J. BRIDGES
SENIOR VICE PRESIDENT

NIEL
WILLARDSON
NARAYANA
KOCHERLAKOTA

CLAUDIA
SWENDSEID

DUANE A. CARTER
SENIOR VICE PRESIDENT, DIRECTOR OF OFFICE
OF MINORITY AND WOMEN INCLUSION, AND
EQUAL EMPLOYMENT OPPORTUNITY OFFICER
RON J. FELDMAN
SENIOR VICE PRESIDENT
LINDA M. GILLIGAN
SENIOR VICE PRESIDENT AND
GENERAL AUDITOR
CLAUDIA S. SWENDSEID
SENIOR VICE PRESIDENT

xx

55

NIEL D. WILLARDSON
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND CORPORATE SECRETARY
KEI-MU YI
SENIOR VICE PRESIDENT AND
DIRECTOR OF RESEARCH

KEI-MU
YI

2012 OFFICERS
JAMES M. BARNES
VICE PRESIDENT AND
CHIEF EXAMINATION OFFICER

PETER BAATRUP
ASSISTANT VICE PRESIDENT AND
ASSISTANT GENERAL COUNSEL

KELLY A. BERNARD
VICE PRESIDENT

KARIN M. BEARSS
ASSISTANT VICE PRESIDENT

MICHELLE R. BRUNN
VICE PRESIDENT

KENNETH R. BEAUCHEMIN
ASSISTANT VICE PRESIDENT

BARBARA G. COYLE
VICE PRESIDENT

BRADLEY J. BEYTIEN
ASSISTANT VICE PRESIDENT

R. PAUL DRAKE
VICE PRESIDENT AND BRANCH
MANAGER

SHERYL L. BRITSCH
ASSISTANT VICE PRESIDENT

DAVID G. FETTIG
VICE PRESIDENT
TERRY J. FITZGERALD
VICE PRESIDENT
MICHAEL GARRETT
VICE PRESIDENT
JEAN C. GARRICK
VICE PRESIDENT
DEBORAH A. KOLLER
VICE PRESIDENT
MARIE R. MUNSON
VICE PRESIDENT
MARK A. RAUZI
VICE PRESIDENT
PAUL D. RIMMEREID
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
RICHARD M. TODD
VICE PRESIDENT
DIANN G. TOWNSEND
VICE PRESIDENT
MARY E. VIGNALO
VICE PRESIDENT

JACQUELYN K. BRUNMEIER
ASSISTANT VICE PRESIDENT
MESUDE CINGILLI
ASSISTANT VICE PRESIDENT
GREGORY P. CUTSHALL
ASSISTANT VICE PRESIDENT
JAMES T. DEUSTERHOFF
ASSISTANT VICE PRESIDENT
TIMOTHY L. DEVANEY
ASSISTANT VICE PRESIDENT
JOSEPH W. FAHNHORST
ASSISTANT VICE PRESIDENT
SCOTT F. FORSS
ASSISTANT VICE PRESIDENT
PETER J. GAVIN
ASSISTANT VICE PRESIDENT
KENNETH C. HEINECKE
ASSISTANT VICE PRESIDENT
CHRISTINE M. JOHNSON
ASSISTANT VICE PRESIDENT
JACQUELINE G. KING
ASSISTANT VICE PRESIDENT AND
COMMUNITY AFFAIRS OFFICER

JOHN E. YANISH
VICE PRESIDENT AND
DEPUTY GENERAL COUNSEL

xx
56

ELIZABETH W. KITTELSON
ASSISTANT VICE PRESIDENT AND
DEPUTY DIRECTOR OF OFFICE OF
MINORITY AND WOMEN INCLUSION
DEBRA L. KNILANS
ASSISTANT VICE PRESIDENT
AMY J. KYTONEN
ASSISTANT VICE PRESIDENT
TODD A. MAKI
ASSISTANT VICE PRESIDENT
FREDERICK L. MILLER
ASSISTANT VICE PRESIDENT
KINNEY G. MISTEREK
ASSISTANT VICE PRESIDENT
BARBARA J. PFEFFER
ASSISTANT VICE PRESIDENT
ROBERT E. SAUVÉ
ASSISTANT VICE PRESIDENT
RANDY L. ST. AUBIN
ASSISTANT VICE PRESIDENT AND
ASSISTANT GENERAL AUDITOR
SHARON T. SYLVESTER
ASSISTANT VICE PRESIDENT
THOMAS D. TALLARINI
ASSISTANT VICE PRESIDENT
DARIAN A. VIETZKE
ASSISTANT VICE PRESIDENT
MARK R. VUKELICH
ASSISTANT VICE PRESIDENT
CHRIS P. WANGEN
ASSISTANT VICE PRESIDIENT

FOR MORE INFORMATION ABOUT THE MINNEAPOLIS FED
AND THE FEDERAL RESERVE SYSTEM, GO TO

minneapolisfed.org
USEFUL TELEPHONE NUMBERS
(612 AREA CODE UNLESS OTHERWISE INDICATED):

FOR THE PUBLIC
CONSUMER AFFAIRS HELP LINE: 204-6500
MEDIA INQUIRIES: 204-5261
RESEARCH LIBRARY: 204-5509
TREASURY ACTION RESULTS, CURRENT OFFERINGS, BILLS, NOTES,
BONDS: 1-800-722-2678

FOR FINANCIAL INSTITUTIONS
CASH SERVICES HELP LINE: 204-5227 OR 1-800-553-9656
CHECK SERVICES SUPPORT: 1-877-FRB-CHKS OR 1-877-372-2457
ELECTRONIC ACCESS CUSTOMER CONTACT CENTER
FEDLINE SUPPORT: 1-800-333-7010
FEDLINE DIRECT COMMAND: 1-888-881-6700
FEDACH CENTRAL OPERATIONS SUPPORT: 1-886-234-5681
FEDWIRE OPERATIONS SUPPORT: 1-800-333-2448
SAVINGS BOND CUSTOMER SERVICE: 1-800-553-2663

57

The Region

Public Affairs
Federal Reserve Bank of Minneapolis
P.O. Box 291
Minneapolis, Minnesota 55480-0291

BETTER POLICY
THROUGH BETTER

COMMUNICATION
TWO CONVERSATIONS WITH

NARAYANA KOCHERLAKOTA

2012 ANNUAL REPORT
FEDERAL RESERVE BANK

OF MINNEAPOLIS