The economy is "very close" to full employment, and it's time for the Federal Reserve to raise interest rates for the first time in nine years, said Alan Krueger, former chairman of President Barack Obama's White House Council of Economic Advisers.
"I think it would be prudent for the Federal Reserve to start to normalize monetary policy," the Princeton professor of economics and public affairs told CNBC's "Squawk Box." The Fed meets Dec. 15-16, and is increasingly expected to hike rates, which have been at near-zero percent since December 2008 in the wake of the financial crisis.
In March 2014, Krueger dropped a bomb into the monetary policy debate with a paper that argued long-term unemployed Americans were likely to leave the workforce for good. Worse, those who have left were unlikely to come back. His theory: The supply of available workers may be smaller than it appears, and wage pressures are likely to develop more quickly. For policymakers, it meant that the Fed had less time to stay at zero than many of them had believed.
In a speech Wednesday, Fed Chair Janet Yellen disagreed with Krueger's findings. Yellen said: "I believe that a significant number of individuals now classified as out-of-the-labor-force would find and accept jobs in a stronger labor market."
Krueger told CNBC on Thursday that data from the Bureau of Labor Statistics don't bear out Yellen's optimism, which has been an argument for keeping rates low in order to boost the job market — half of the central bank's dual-mandate of fostering maximum employment and setting a target for inflation.
The longer a worker remains unemployed, the probability rises that he or she will leave the labor force altogether, Krueger asserted. He provided this chart to illustrate his point: