Fed President: I've Got 4% Unemployment In My District, And I'm Just Barely Seeing Wage Pressure

Orange slugWikimedia CommonsInflation is still sluggish.

Minneapolis Fed president Narayana Kocherlakota spoke in Manhattan Tuesday.

His main point was that inflation is low and it’s not going up anytime soon. As such, he doesn’t think the Fed should be thinking about tightening monetary policy just yet.

The employment picture has improved a ton, particularly in the last year, but why not give it room to get even better?

He definitely thinks the jobs situation could be better, particularly since there’s still no wage pressure. He said his Fed district has very low unemployment — less than 4% — and is only recently seeing some signs of wage pressure. The implication there seems to be that with the country’s unemployment rate at 5.6%, it could still be a while before there’s a significant uptick in average hourly earnings.

“It gives me some signal that we [the Fed] have some more room to run,” he said.

Further, Kocherlakota said he doesn’t think that inflation is going anywhere very quickly.

When someone in the audience asked him why, he responded that he thinks “one of the prime determinants of inflation is where it’s been.”

He clarified it’s not the only thing that affects where inflation might go, but the fact that inflation has been so low for so long indicates to him that it probably won’t hit the Fed’s 2% target for a while.

Here’s what PCE inflation, the Fed’s preferred indicator, looks like over the last three years:

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