WASHINGTON -- Federal Reserve Bank of Minneapolis President Narayana Kocherlakota, who called for prolonging monetary stimulus in his dissent from the most recent policy decision, will step down when his term ends in February 2016.
"I became president of the Minneapolis Bank in October 2009 so that I could be of service to my country in an economic emergency," he said in a statement Friday after informing the bank's board of his decision earlier this week. "I have been honored to play a role in shaping the response to that dire situation."
His intended departure would intensify turnover among district bank chiefs who rotate each year as voters on interest- rate policy. Dallas Fed President Richard Fisher and Philadelphia Fed chief Charles Plosser have both announced that they will step down early next year.
Kocherlakota, 51, is viewed as one of the central bank's most dovish officials for his advocacy to keep interest rates lower for longer to lift up sluggish inflation.
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A voter on the Federal Open Market Committee this year, he dissented at the October meeting over the policy statement, which said he wanted a commitment to keeping rates low until inflation expectations picked up and opposed ending the Fed's bond-buy
The Minneapolis Fed will next hold a voting seat on the FOMC in 2017.
"I think of Kocherlakota as the iconoclast on the FOMC," said Robert Stein, deputy chief economist at First Trust Portfolios in Wheaton, Ill.. "He's been an interesting speaker, sometimes in the mainstream, sometimes not. He's very thought-provoking, so I'm actually kind of sad to see him leaving."
Kocherlakota was an early advocate of tying Fed policy to economic thresholds in the aftermath of the Great Recession, when officials were battling to stimulate growth after cutting rates to near zero in December 2008, where they remain today.
That argument represented an unexpected change of mind by the Minneapolis Fed's chief back in September 2012, when he said the Fed should hold rates near zero until unemployment dropped below 5.5 percent. This was a major reversal from his position a few months earlier -- that the Fed may need to raise rates later that year, or in 2013.
"Since his views have fallen at the extreme end of both sides of the policy debate over his tenure, it is impossible to say what the policy implications of today's announcement will be," said Thomas Simons, an economist at Jefferies in New York, in a emailed research note. "However, since he would not have voted again until 2017, the effects are probably minimal."
More recently, Kocherlakota proposed the Fed commit itself to pushing inflation up to its 2 percent target within two years to reinforce public confidence of reaching this goal that he warned might otherwise prove elusive. Kocherlakota had dissented at the March FOMC meeting because he wanted a stronger commitment to spur inflation.
The Fed's preferred gauge of price pressures facing U.S. households rose by 1.4 percent in October compared with a year ago and was last above 2 percent in March 2012.
"The lack of a public timeline for a goal can sometimes lead to a lack of urgency in the pursuit of that goal," he wrote in an article published on Dec. 1.
Kocherlakota's tenure at the helm also created waves outside of policy circles. The regional Fed bank's chairman, Mary Brainerd, issued a statement in November 2013 voicing support for his leadership after reports he had ousted two Minneapolis Fed economists.
-- With assistance from Aki Ito in San Francisco and Steve Matthews in Atlanta.