The Federal Reserve needs to read the labour market differently and “re-tool” its methods of estimating slack in the economy, Federal Reserve Bank of Minneapolis president Neel Kashkari says in an economic letter.

“In the same way prices reflect supply and demand in most other markets, the rate of compensation growth is the best way to determine how near the labour market is to maximum employment,” he says.

Kashkari explains that while there has been an increase in labour force participation