Afternoon Must-Read: Narayana Kocherlakota: ‘Persistently Below-Target Inflation Rate is a Signal That the U.S. Economy is Not Taking Advantage of all of its Available Resources’

Mark Thoma sends us to Narayana Kocherlakota: “Congress has charged the FOMC with making monetary policy so as to promote price stability and maximum employment…

…Let me start with price stability. The FOMC has translated the price stability objective into an inflation rate goal of 2 percent per year. This inflation rate target refers to the personal consumption expenditures, or PCE, price index… [which] currently stands at 1.6 percent…. In fact, the inflation rate has averaged 1.6 percent since the start of the recession six and a half years ago, and inflation is expected to remain low for some time…. The second FOMC goal is to promote maximum employment…. Progress in the decline of the unemployment rate masks continued weakness in labor markets…. A persistently below-target inflation rate is a signal that the U.S. economy is not taking advantage of all of its available resources…. There are many people in this country who want to work more hours, and our society is deprived of their production…