April 16, 2014 / 12:05 AM / in 4 years

U.S. Fed falling short on inflation and job goals, Kocherlakota says

FARGO, North Dakota (Reuters) - The U.S. Federal Reserve is coming up short on its goals for both inflation and employment, a top Fed official said on Tuesday, and the central bank ought to do more to ensure they return to healthier levels.

Inflation is “well below” the Fed’s 2-percent goal, and looks likely to remain there for several more years, Minneapolis Federal Reserve Bank President Narayana Kocherlakota said in brief remarks prepared for delivery to a town hall in Fargo, North Dakota.

Employment “remains low” and is likely to stay so for several more years as well, he said.

“Those results are not as good as they should be. We’re undershooting on inflation and underperforming on employment,” Kocherlakota said. “I look forward to working with my colleagues to use our monetary policy tools to achieve better macroeconomic outcomes.”

Kocherlakota’s critical assessment of the Fed’s achievements is no surprise. He has long called on his colleagues to do more to drive down unemployment, now at 6.7 percent, and boost inflation, which by the Fed’s preferred gauge hovers just above 1 percent.

But so far he has failed to convince his fellow policymakers that the economy is not ready to be weaned from the extraordinary support the Fed has been providing. Policymakers this year have begun a gradual wind-down of the Fed’s massive bond-buying stimulus, and are setting the stage for an increase in short-term interest rates, pinned near zero since December 2008, sometime next year.

Last month Kocherlakota cast a lone dissent at the central bank’s regular policy-setting meeting, arguing that the Fed should pledge to keep rates near zero until unemployment falls to at least 5.5 percent, as long as inflation stays muted.

Instead, policymakers abandoned the idea of tying low rates to any specific threshold for unemployment, saying instead they would take into account a wide range of economic measures before raising rates.

Reporting by Alicia Underlee Nelson; Writing by Ann Saphir; Editing by Lisa Shumaker

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