The U.S. labor market remains "far from healthy," according to Federal Reserve Bank of Minneapolis President Narayana Kocherlakota.
From its peak of 10 percent in October 2009, the unemployment rate has slowly declined to 6.7%, he noted, "unusually high relative to the past quarter century or so." The rate is also above most forecasts of its expected long-run level.
"Personally, I expect that, over the long run, the unemployment rate will converge to just over 5 percent," Kocherlakota told the Rochester Chamber of Commerce, according to prepared text released by the Fed. "Basically, an unemployment rate of 6.7 percent means that the U.S. labor market is far from healthy."
And that rate, "troubling as it is," may overstate the improvement, since "most of the declines in the unemployment rate since October 2009 have occurred because the fraction of people who are looking for work has fallen," according to Kocherlakota, a voting member of the Federal Open market Committee this year.
He pointed to the employment-to-population ratio, which "was over 63 percent" in March 2007 and fell to "just over 58 percent in mid-2011. The percentage has risen little from this low point and remains lower than at any time between 1986 and 2007," he said.
Meanwhile, the Fed is also missing on its inflation target. Since December 2007, the personal consumption expenditure price index has averaged 1.5% a year, and since early 2012, it has drifted lower, with the rate currently near 1%, Kocherlakota noted.
He projected it could take four years for inflation to reach the target rate. He said, "below-target inflation signals a significant problem in our economy" and means "resources are being wasted."
