Five years ago, Kocherlakota dismissed the power of monetary policy to bolster employment:
Kocherlakota in August 2010
What does this change in the relationship between job openings and unemployment connote? In a word, mismatch. Firms have jobs, but can’t find appropriate workers. The workers want to work, but can’t find appropriate jobs. There are many possible sources of mismatch—geography, skills, demography—and they are probably all at work. Whatever the source, though, it is hard to see how the Fed can do much to cure this problem. Monetary stimulus has provided conditions so that manufacturing plants want to hire new workers. But the Fed does not have a means to transform construction workers into manufacturing workers.
Three years later (September 2013) his view changed completely:
First, I will show you data that depict the painfully slow pace of recovery in the U.S. labor market. Second, I will show you data that demonstrate that there is considerable monetary policy capacity with which to address this problem.
Now, New York Fed William Dudley parrots Kocherlakota in 2010:
The New York Fed president was in western New York for a routine district visit, his third to Rochester in the past five years. In remarks kicking off his one-day tour, Mr. Dudley highlighted structural imbalances in the labor market, saying they can’t be resolved with monetary policy alone.
He said there is a growing mismatch between employers’ needs and job seekers’ skills or locations, and that monetary policy couldn’t substitute for the workplace development programs that are needed to fix them.
“Monetary policy can help labor markets recover by providing incentives for firms to invest and grow,” Mr. Dudley said. “However, monetary policy cannot by itself solve skill mismatches that may exist in the economy. These frictions must be addressed in other ways.”
The point that Kocherlakota grasped two years ago is that monetary policy, by “capping aggregate spending” has not been providing incentives for firms to invest and grow.