The Federal Reserve’s most forceful advocate for monetary stimulus is pushing back on the idea that the central bank has to raise interest rates in 2015.
Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said in a speech Thursday that it would be a “mistake” for his colleagues at the Fed to raise the target interest rate in 2015, arguing that there is still enough unemployment to justify loose money for longer.
That puts him at odds with Fed chairwoman Janet Yellen, who has reiterated her view that rate hikes would be appropriate at some point this year despite a recent batch of weak economic data.
The Fed has held short-term interest rates near zero since late 2008 in an unprecedented effort to boost the economy in the wake of the financial crisis. Kocherlakota suggested Thursday that the central bank should stretch its zero-rates policy into an eighth calendar year.
Kocherlakota is known as the most “dovish” member of the Federal Reserve system, meaning he is less worried about stoking inflation or financial bubbles by keeping rates too low for too long.
Speaking in Helena, Montana, Thursday, Kocherlakota argued that the uptick in job creation in 2014 proved that the Fed can do more to usher in a recovery.
The U.S. economy created nearly 260,000 jobs monthly in 2014. Kocherlakota noted that for the first time since the recession began, employment rose as a share of the population, setting aside those close to retirement age.
That improvement indicates that the recovery has much further to go, he argued, because it shows that prime-age employment could bounce back after falling from 80 percent to near 74 percent.
“These people did not suddenly become disabled,” Kocherlakota said of the group between the ages of 25 and 54. “Nor did they suddenly decide that they could have more fun playing video games than working.”
He cautioned, however, that it would take more than three years of job growth at the 2014 pace for the country to return to the 2007 level of prime-age employment.
The Fed should be “extraordinarily patient” in tightening monetary policy, he said.
Kocherlakota, one of 12 regional Fed bank presidents, is not a voting member of the Fed’s monetary policy committee this year. He is set to rotate onto the committee next year, and has announced his intention to step down from his post at the end of 2016.
