Cooler but still well above normal this week

MPR News helps you turn down the noise and build shared understanding. Turn up your support for this public resource and keep trusted journalism accessible to all. 

Turn Up Your Support

Minneapolis Federal Reserve Bank President Narayana Kocherlakota cast the only dissent in the Fed's decision last week to end its bond-buying program.  He says the economy would still benefit from the stimulus that program provides. MPR's Cathy Wurzer spoke with Kocherlakota about his take on the economy. 

1: Don't be fooled by employment headlines.

 The national unemployment rate has fallen significantly since the recession, a good sign by any standards. But other employment data show a different picture. The number of people working part-time that would like to work more hours remains "very high by historical standards," Kocherlakota says. The fraction of people ages 25-54 who are employed remains very low compared to where it was before the recession. And wage growth remains "highly suppressed," he says.

 The Fed targets an inflation rate of 2 percent, but it hasn't actually hit this goal since the beginning of the recession. Instead, the inflation rate has averaged around 1.5 percent. Kocherlakota says this is a bad sign - a sign that we're underutilizing our labor force. If we were taking full advantage of everyone who wants to work - or wants to work full-time - there would be more competition for talented workers, and thus, higher wages and higher prices.  Then, Kocherlakota says, you'd see inflation at 2 percent.

3: When it comes to prices, believing is seeing.

 Monetary policy, Kocherlakota says, is not just about where interest rates are today, it's about where people think interest rates are going in the future. That's because if businesses and workers believe prices will stay stable, they won't react to short-term economic shifts by adjusting prices or wages. This tends to have a stabilizing effect on inflation in the long-term, which means the central bank has to adjust interest rates less in response. 


 
The Fed voted last week to end its bond-buying program and has signaled intent to raise interest rates next year. Kocherlakota says he's concerned this move away from stimulus - despite consistently low inflation - is leaving people skeptical about the central bank's commitment to its inflation target. What could fix that problem? Communication, he says, more and better.

Business and Economic News

Shows

Morning Edition

Narayana Kocherlakota cast the only dissent in the Fed's decision last week to end its bond-buying program.

3 tips from the Minneapolis Fed president

Go Deeper.

Like this?

News you can use in your inbox