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Fed should cut rate paid on excess reserves: Kocherlakota

ROCHESTER, Minnesota (Reuters) - The Federal Reserve should take even small steps to show it is committed to doing "what it takes" to bring the U.S. economy back to health, a top Fed official said on Tuesday.

Such steps could include cutting the interest rate it pays on excess reserves that banks keep on deposit at the Fed, Minneapolis Federal Reserve Bank President Narayana Kocherlakota told a business group here.

Doing so would have only a small direct effect, he said, but it would show the public that the Fed is determined to return inflation and employment to normal levels.

The Fed's decision to use "verbal guidance" instead of hard-number thresholds to guide market expectations for when it will eventually raise rates leaves markets "guessing," and boosts market volatility, he said.

(Reporting by Ann Saphir; Editing by Leslie Adler)

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