The Federal Reserve should do everything it can to bring unemployment down as quickly as possible, even at the cost of a little inflation, a top Fed official said on Thursday.
"Doing whatever it takes will mean keeping a historically unusual amount of monetary stimulus in place, and possibly providing more stimulus," Minneapolis Federal Reserve President Narayana Kocherlakota said in the text of remarks to the Rotary Club of Houghton, Mich. "Low levels of inflation show that the (Fed) has a lot of room to provide much needed stimulus to the labor market."
The Fed last week unexpectedly kept to its program of buying $85 billion in Treasurys and mortgage-backed securities each month to push down long-term borrowing costs and boost investment and hiring.
Economists, keying off of cues that Fed officials had given for months, had expected the Fed to declare the labor market improved and to begin to trim the stimulus.
Kocherlakota on Thursday argued that the U.S. labor market is still far from healthy and requires continued, and perhaps additional, monetary stimulus to bring it back to normalcy.
He said that the perception the Fed has neither the tools nor the will to fight high unemployment contributes to continued expectations for slow growth, which in turn helps perpetuate weak economic conditions.
The Fed must be "willing to continue to use the unconventional monetary policy tools that it has employed in the past few years," Kocherlakota said.