Fed's Kocherlakota: No Reason To Scale Back Bond-Buying

(RTTNews) - A member of the Federal Reserve says that the central bank might hinder an already tepid economic recovery by reducing the size of its $85 billion per month bond buying program.

"Reducing the flow of purchases in the near term would be a drag on the already slow rate of progress of the economy toward the committee's goals," Narayana Kocherlakota, president of the Minneapolis Federal Reserve, told the St. Paul Chamber of Commerce.

Because fears of inflation have not materialized, the Fed has plenty of room to maintain the scale of its quantitative easing program, or QE3, he argues.

Kocherlakota cites Congressional Budget Office projection that PCE inflation will remain below the Fed's target of 2 percent until the year 2018.

And the Fed's own projections for lackluster jobs growth mandate policy makers do whatever is necessary to kick the recovery into high gear.

Kocherlakota's remarks are closely watched as rotates into a voting spot on the Fed in 2014.

A speech Wednesday night by outgoing Fed chairman Ben Bernanke will be watched for further hints on the direction of monetary policy.