The head of the Federal Reserve Bank of Minneapolis says the Fed is "undershooting" and "underperforming" on its goals of promoting price stability and maximum employment.
Inflation is currently running below the Fed's target rate of 2 percent. And the national unemployment rate remains elevated at 6.7 percent.
The Central Bank is already keeping the Federal Funds Rate, a key benchmark, near zero in order to spur demand for goods and services.
Narayana Kocherlakota says the Fed should lower the interest rate it pays to banks on their reserves. He says that would give banks an incentive to lend money and help economic growth.
"That sounds like it's minuscule but it's really about demonstrating a commitment of staying with the recovery for as long as it takes to get the economy fully recovered," he said Tuesday.
Kocherlakota is a voting member of the powerful FOMC or Federal Open Market Committee, which sets interest rates. He recently dissented when the committee abandoned a target rate for unemployment, saying that would increase uncertainty and suppress economic activity.
Kocherlakota argues rates should stay low until the unemployment rate falls to 5.5 percent.
"I ask sometimes, 'Why did you dissent?' It's really to tell people you lost. It's really an open admission, an honest admission of defeat," Kocherlakota said. "I was pretty open for some time about wanting to have more quantitative metrics/ markers, and the committee decided to go a different way."
The minutes to the most recent FOMC meeting come out Wednesday. Kocherlakota says the record will not reveal any surprises about his contributions to the meeting.