Fed's Kocherlakota sees continued weak job market, low inflation

BRAINERD Minn. Fri Aug 15, 2014 1:17pm EDT

Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, speaks at the ninth annual Carroll School of Management Finance Conference at Boston College in Chestnut Hill, Massachusetts June 5, 2014.   REUTERS/Brian Snyder

Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, speaks at the ninth annual Carroll School of Management Finance Conference at Boston College in Chestnut Hill, Massachusetts June 5, 2014.

Credit: Reuters/Brian Snyder

BRAINERD Minn. (Reuters) - Despite a rapidly falling jobless rate, U.S. labor markets are still weak and inflation is years away from achieving the Federal Reserve's 2-percent goal, a top Fed official said on Friday.

Citing the "disturbingly low" fraction of people aged 25 to 54 who actually have a job, and the historically high fraction of part-time workers who would prefer to work full time, Minneapolis Federal Reserve Bank chief Narayana Kocherlakota told a community banking forum here that labor markets are still "some way from meeting the (Fed)'s goal of full employment."

Still, he projected that the U.S. jobless rate, now at 6.2 percent, will fall to 5.7 percent this year, just above the range Fed officials believe does reflect full employment.

Kocherlakota, known as a policy dove and wielding a vote this year on the Fed's policy-setting panel, also said he believes it will take until 2018 before inflation returns to the Fed's 2-percent target. By the Fed's preferred measure, inflation is stuck around 1.6 percent.

"This means that the (Fed) is still a long way from meeting its targeted goal of price stability," Kocherlakota told the Independent Community Bankers of Minnesota.

While he did not make any explicit policy calls in his prepared remarks, Kocherlakota's view that the economy is still far from strong sets him up for a potential clash with fellow central bankers when they meet in Washington next month.

Many observers expect the Fed to use its September meeting to acknowledge improvement in employment and inflation with new hints about when it expects to end what by then will be nearly six years of rock-bottom interest rates.

Kocherlakota has pushed for the Fed to extend its low-rate promise in order to bring the economy back to health more quickly.

Most of Kocherlakota's remarks on Friday centered on community banks.

Like several of his fellow Fed policymakers, Kocherlakota called for tailoring regulations to reduce the cost of compliance for small banks, including exempting community banks from some of the restrictions and oversight to which bigger rivals are subjected.

But he also said an analysis by the Minneapolis Fed does not so far suggest that heavier regulatory burdens are accelerating an established pattern of consolidation among small banks, as some critics of regulation have suggested.

(Reporting by David Bailey; Writing by Ann Saphir; Editing by Meredith Mazzilli)

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