From the Wall Street Journal article Fed's Kocherlakota Shifts on Unemployment:
“Mr. Kocherlakota's transformation caught many Wall Street observers off guard. Eric Green, an economist at TD Securities, called Mr. Kocherlakota's plan "positively preposterous stuff" because it would hurt the Fed's inflation credibility.”
The proposal in question is the following.
His proposal: Pledge to keep short-term interest rates very low until the unemployment rate, which was 8.1% in August, falls to 5.5%. He said it could take four or more years to reach that goal.
While what Eric Green says is certainly possible, the Japan experience also showed us that the suggested proposal does not necessarily end with run-away inflation. Here’s the Japan CPI courtesy of FRED (link here; note my plot goes from 1998 to now) over the past decade.
The Bank of Japan started unconventional policies in 1998 – first with what is commonly referred to as ZIRP (Zero Interest-Rate Policy) and then the QEP (Quantitative Easing Policy) from 1999 to 2006. While there is a spike from 2007 to 2008 – that is largely due to the rise in oil prices over that period.
Do note that the QEP that the Bank of Japan conducted conditioned the exit of the policy to the core CPI being above zero, while what Mr. Kocherlakota proposes conditions the exit on unemployment rate of 5.5%. If you believe the NAIRU (Non-Accelerating Inflation Rate of Unemployment) will be above 5.5% for the next few years, then some concerns about future inflation might be warranted.