Fed made choices 'designed' to keep employment low, official says

Federal Reserve officials have intentionally pursued policies that have kept employment and inflation low over the economic recovery, a member of the central bank said Friday.

Narayana Kocherlakota, the outgoing president of the Federal Reserve Bank of Minneapolis, said at a conference in Philadelphia that the Fed made "choices that were designed to keep both employment and prices needlessly low for years."

The Fed chose to keep employment low, Kocherlakota said, because officials were following a practice of minimizing movements in the Fed's short-term interest rate target. That target had been cut to zero during the financial crisis.

The policy that Kocherlakota claimed the Fed mistakenly followed is known as the "Taylor Rule," after Stanford professor John Taylor. The rule describes the Fed's interest rate policy as a function of inflation and gross domestic product.

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