Take away the mother earth arguments, patriotism pronouncements, and zoning from the energy industry discussions and what is left? Money. Money for individuals, investors, foreign and domestic corporations, and all levels of government. Who and which entities will profit is the root of all the debate. Thirty years ago during the last regional boom the guru of economic policy was nobel-prize winner George Gilder, the father of the the trickle-down theory and supply side economics. Today, it is Narayana Kocherlakota. Named president of the Federal Reserve Bank of Minneapolis two years ago, Kocherlakota has proven to be a formidable force in monetary policy. He appearred in Sidney, Montana this week with the Federal Reserve board in honor of the president of 1st Bank in Sidney, John Franklin. The meeting is Franklin's final as he completed his term of service on the Federal Reserve board. Franklin introduced the group through the week to the marriage of energy and economy in the Mondak region. Kocherlakota told The Examiner he does not factor in the affects of energy corporations into monetary policy formula because of their instability.
Both in private conversation and to an audience of business leaders at the Sidney Convention Center Kocherlakota uses every opportunity to explain monetary policy to every one. He explaind that his bank is one of 12 that, along with the Board of Governors in Washington DC, make up the Federal Reserve System. They are the bank's banks. Minneapolis serves Montana, the Dakotas, Minnesota, and portions of a few other surrounding states. The primary role of the Federal Reserve System, the nation's central bank, is to realize national economic goals through monetary policy actions that influence the availability and cost of money and credit in the economy.
Kocherlakota boils down complicated monetary policy to the job of pursuing the highest level of employment with price stability. That is accomplished by controlling inflation. The Federal reserve views inflation as “mandate-consistent” if it is running at 2% or a bit under.
The term "monetary policy" refers to what the Federal Reserve, the nation's central bank, does to influence the amount of money and credit in the U.S. economy. What happens to money and credit affects interest rates (the cost of credit) and the performance of the U.S. Economy.
In the audio to the left of this column, Kocherlakota spoke with The Examiner and Steve Hamel of the Sidney Herald about monetary policy and impacts in the region.
Still in his 40's, Kocherlakota is young for the position he assumed in 2009 – and he is not party-line. In an unusual move, for two months he has consistently dissented from the other presidents of regional federal reserves.
Kocherlakato told the business community why he has take the unsual move:
“So, since November 2010, the unemployment rate and the outlook for the unemployment rate have improved. Inflation and the outlook for inflation have both risen closer to 2 percent. As I’ve just discussed, in response to these changes in economic conditions, the Committee should havelowered the level of monetary accommodation over the course of the year. Instead, through actions taken at its last two meetings, the Committee has raised the level of monetary accommodation. In this sense, the Committee’s recent actions in 2011 are inconsistent with the evolution of the economic data in 2011.
I want to be clear about one additional point. Along with many private sector forecasters, the FOMC (Federal Open Market Committee, the Fed’s policymaking group) has overestimated the strength of the recovery over the past two years. Some have suggested that the unexpected slowness of the recovery is a justification for the FOMC’s increasing the level of monetary accommodation over the past couple of months. But I disagree with this argument. I’ve described how, as the economy recovers, the FOMC should respond by reducing the level of monetary accommodation. Logically, it follows that if the economy recovers more slowly than expected, then the FOMC should respond by reducing the level of monetary accommodation more slowly than expected. The FOMC should only increase accommodation if the economy’s performance, relative to the dual mandate, actually worsensover time.
To sum up: The Committee’s actions at the last two meetings are inconsistent with a systematic pursuit of its communicated objectives. It follows that these actions diminish the Committee’s credibility and so reduce the effectiveness of future Committee actions and communications. And that’s why I’ve dissented from the Committee’s actions at those meetings.”
Listen to Kocherlakota's full presentation to eastern Montana leaders at http://www.linkup2.me/minneapolisfed
Learn more about the role the federal reserve plays in our regional financial stability here:
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