By Michael S. Derby 

NEW YORK--Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said Thursday that moderating job growth may be the fault of the central bank's plans to wind down stimulus efforts in 2013, and he said that damage could be undone by lowering already rock-bottom short-term interest rates.

"I don't see raising the target range for the fed-funds rate above its current low level in 2015 or 2016 as being consistent with the pursuit of the kind of labor market outcomes that we are charged with delivering, " in an environment where inflation has been weak and is expected to stay that way for some time, Mr. Kocherlakota said.

"I would be open to the possibility of reducing the fed-funds target range even further, as a way of producing better labor market outcomes," he said.

To do that, Mr. Kocherlakota's view suggests radical action on the part of the Fed. Its current short-term target rate is already set to range between 0% and 0.25%, so lowering it further would appear to push the Fed target rate into negative territory.

Mr. Kocherlakota's monetary-policy prescription appears to clear up a mystery from the Fed's mid-September meeting. Then, a strong majority of Fed officials predicted that they would raise the interest-rate target by the end of the year, against one unnamed policy maker who favored pushing rates into negative territory. At the Fed's news conference after the Federal Open Market Committee meeting, Chairwoman Janet Yellen said a move to negative rates wasn't under serious consideration given that it remains likely the economy will continue to grow and add jobs.

Mr. Kocherlakota's remarks came from the text of a speech prepared for delivery before an audience in Mankato, Minn. The official has been a steadfast supporter of the Fed taking strong action to get the economy back to where it was before the so-called Great Recession.

The official devoted part of his speech to trying to understand why labor-market gains have slowed this year after growing robustly the year before. He sees the Fed's hand, citing the "taper tantrum" of 2013. Then, Fed officials' suggestion that they were weighing a wind-down in their bond-buying program led to market havoc, with borrowing costs shooting higher. Eventually, calm returned, but in that episode, Mr. Kocherlakota sees the seeds of slower hiring growth.

What happened in 2013 was the start of "long, gradual tightening cycle," Mr. Kocherlakota said. Given that changes in monetary policy affect the economy with as much as a two-year lag, "the slow rate of labor-market improvement in 2015 is not all that surprising."

The distance the job market still needs to cover goes a long way to explaining why inflation has fallen short of the Fed's 2% target for more than three years and is likely to remain soft until "2018 or later, " Mr. Kocherlakota said. He said the Fed can make the weak price environment work in its favor.

"The FOMC has a free lunch," Mr. Kocherlakota said. "There would be little or no inflationary cost if the Committee were to aim for the kind of remarkable improvement in labor-market conditions that we saw in 2014," and that is why he is open to cutting rates from their already near-zero mark.

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

October 08, 2015 13:30 ET (17:30 GMT)