RAPID CITY, S.D. – Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said policymakers have fallen short of their mandates for full employment and stable inflation and shouldn't consider raising interest rates next year.
"Labor market outcomes have been distressingly weak," Kocherlakota said Tuesday in a speech prepared for delivery in Rapid City. "Monetary policy has proven to be insufficiently accommodative to offset either the price or employment effects of this large shock" from the recession.
Kocherlakota, who votes this year on the Federal Open Market Committee, cited the jobless rate falling "only gradually" to 5.9 percent from a 2009 peak of 10 percent, and the share of Americans who have a job rising "only slightly."
Most policymakers project it will be appropriate to raise the federal funds rate next year after keeping it near zero since December 2008. They also expect to end their asset purchase program at their next meeting, on Oct. 28-29.
The recession that ended in 2009 pushed employment and inflation below the Fed's goals, and "there is little sign of an uptick" in prices, Kocherlakota said Tuesday.
The Fed's preferred gauge of inflation, the personal consumption expenditures price index, rose 1.5 percent in August from a year earlier and hasn't exceeded 2 percent since March 2012. Kocherlakota said he doesn't expect it to get back to that target until 2018.
"This sluggish inflation outlook implies that, at any FOMC meeting held during 2015, inflation would be expected to be below 2 percent over the following two years," he said. "It would be inappropriate for the FOMC to raise the target range for the fed funds rate at any such meeting."
Kocherlakota told reporters after his speech that he sees no reason for the Federal Open Market Committee to alter its pledge to keep interest rates low for a "considerable time" after it concludes its two-year asset-purchase program this month.
Answering questions from the audience, Kocherlakota said he is seeing "a little bit of a decline" in inflation expectations and that shows "we're not being as effective as we could be in communicating" the Fed's commitment to bringing inflation up to 2 percent.
He told reporters later he expects "the inflation outlook will remain sufficiently soft" to make an interest-rate increase inadvisable in 2015.