WASHINGTON—One of three Federal Reserve System officials who dissented in the Fed’s policy decision this week is warning that the central bank is taking an “unacceptable” risk by not paying more attention to the dangers posed by low inflation.
Narayana Kocherlakota, the president of the Fed’s regional bank in Minneapolis, said on Friday that the Fed’s failure to respond to weak inflation “runs the risk of creating a harmful downward slide in inflation” similar to the problems facing Japan and Europe.
Meanwhile, Philadelphia Fed President Charles Plosser, another dissenter at this week’s meeting, is unhappy for a different reason. He feels the Fed is making a mistake by saying it will still be patient in deciding when to begin raising interest rates.
Plosser said it was an error to use the word “patient” and also to say that current policy had not changed from the October meeting when the Fed was saying that rates would remain near a record low for “a considerable period.”
“Whether saying we will be patient or we will wait a considerable time, the language continues to stress the passage of time as a key determinant of policy,” Plosser said. “Such date-based guidance is problematic since policy should be determined by the data.”
Both Plosser and Kocherlakota issued statements explaining their votes on the Fed’s decision, which was approved 7-3. Dallas Fed President Richard Fisher did not issue a statement elaborating on his “no” vote.
The three dissents were the most since 2011 and underscored the sharp divisions inside the Fed as it transitions from an extended period of ultra-low rates to a period in which it will start to raise rates.