The Federal Reserve should target an inflation rate of 1.5 per cent, Bill Poole, president of the St Louis Fed, said on Monday, joining a public debate that has exposed disagreement at the highest ranks of the US central bank as to what its ultimate inflation objective should be.

His comments in effect reject the suggestion by Frederic Mishkin, Fed governor, that it may not be worth trying to drive inflation below 2 per cent because of the likely cost in lost jobs and output.