The Federal Reserve is allowing the American economy to waste "lots of resources'' by letting inflation stay too low and unemployment stay too high, a top Fed official said on Tuesday, exhorting his fellow policymakers to do more.
"We need to do better as a committee,'' said Narayana Kocherlakota, president of the Minneapolis Federal Reserve, referring to the Fed's policy-setting panel.
Inflation, which is running near 1 percent, is "too low'' and does not look likely to rise back to the Fed's 2 percent goal for another four years, said Kocherlakota, in remarks prepared for delivery to the Rochester Area Chamber of Commerce.
"Low inflation in the United States tells us that resources are being wasted,'' he said, including the productive potential of Americans who cannot get jobs because demand for goods and services is so low.
And while unemployment has fallen from the recession-era high of 10 percent, "the U.S. labor market is far from healthy,'' he said.
Indeed, the current unemployment rate of 6.7 percent probably overstates the health of the labor market, he said, because it does not count those who have given up looking for work or those who are working part time but who would rather work full time.
Longer term, he said, unemployment should fall to just over 5 percent.
"There is still significant underutilization of our country's most important resource—its people,'' he said.
Kocherlakota's view that the Fed should do more is no secret: last month, he cast the lone dissenting vote on the Fed's decision to jettison firm economic guideposts for when it would finally raise interest rates.