The leader of the Minneapolis Fed said Tuesday that Americans should not accept a soft economy as a new normal.
Local Federal Reserve President Narayana Kocherlakota said the job market is still too weak and inflation too low. He said the central bank should do more to encourage growth and strengthen the job market.
"I think as Americans we should really fight against this notion of a new normal," Kocherlakota told members of the Minnesota Business Partnership. "There are always choices to be made, there are always choices that are better than worse ones, and if we start to talk about a 'new normal,' it could become self-fulfilling."
Sticking to a message he's been delivering in speeches over recent months, Kocherlakota said the Fed's forecasts show inflation staying below its target of 2 percent for the next few years, and the Fed should aim for inflation to rise in order to boost wages. Unemployment will continue to fall, he said, but more slowly than the 1.4 percent drop over the past 12 months.
"I continue to think this rapid decline will not be sustained," he said.
And, he pointed out, the national unemployment rate of 6.1 percent is misleadingly low. The employment-to-population ratio is still low by historical standards. Also, the numbers of people working part-time because they can't find a full-time job are high by historical standards.
This is not a "new normal," Kocherlakota said, but a sign of inadequate economic demand. "We can see underperformance in employment in a number of measures," he said.
Asked whether the Fed's policy of low interest rates and its massive bond-buying program are contributing to a global asset bubble and financial instability, Kocherlakota said the rise in asset prices is being driven by other factors in addition to low interest rates.
"Asset prices are high by historical standards and interest rates are low by historical standards, and that's being driven by forces that are really beyond monetary policymakers' control," he said. "There's a lot of demand for savings right now in the world."
Kocherlakota attributed a global boom in savings to demographic factors and a general fear of borrowing, but pointed out that despite low interest rates, the Fed is still falling short of its goals for inflation and U.S. employment.
"That's telling you that there are forces beyond monetary policy that are responsible for the interest rate climate we're in," he said.
The Federal Open Market Committee, which sets monetary policy and on which Kocherlakota is a voting member, holds its next meeting July 29-30. At its last meeting, the committee continued to cut back on its bond-buying program, known as quantitative easing.