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M. Continuo

Kocherlakota says economy not worse than thought


    MARQUETTE, Mich (Reuters) - The Federal Reserve's decision last week to buy more U.S. government debt should not be viewed as a sign the economic outlook is worse than investors thought, a top Federal Reserve official said on Tuesday.

    Last week the U.S. central bank's policy-setting Federal Open Market Committee repeated its pledge to keep interest rates extraordinarily low for an "extended period," and took the further step of saying it would begin reinvesting cash from maturing mortgage bonds to buy more government debt.

    The move took some investors by surprise.

    "The FOMC's decision has had a larger impact on financial markets than I would have anticipated," Minneapolis Fed President Narayana Kocherlakota said in the text of speech to business leaders.

    "My own interpretation is that the FOMC action led investors to believe that the economic situation in the United States was worse than they, the investors, had imagined," he said. "In my view, this reaction is unwarranted."

    (Reporting by Ann Saphir, Editing by Chizu Nomiyama)