Minneapolis Fed President Narayana Kocherlakota said in a speech in Frankfurt that monetary policy won't be enough to meet the central bank's goals on inflation and employment, due to the decline in the long-run neutral real interest rate. Over the past year, he noted, the 10-year, 10-year forward TIPS yield has averaged around 1.5%, compared to between 2% and 2.5% between the second half of 2004 and the first half of 2007. He said "fiscal policymakers" -- that is, Congress -- could mitigate the risk by by choosing to maintain higher levels of public debt than markets currently anticipate, though he stressed there would be risks from doing so. Kocherlakota, who is retiring from the central bank, is one of the most dovish Fed members.
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