At least one member of the Federal Reserve says the central bank should slow its move to tighten monetary policy this year, putting himself at odds with Chairwoman Janet Yellen.
Federal Reserve Bank of Chicago President Charles Evans said Monday that “a later liftoff and a gradual subsequent approach” are called for to guard against the risks of a premature rate hike.
Speaking in Milwaukee, Evans called on the Fed to have an “extra-patient approach” in raising rates, citing that inflation remains well below the Fed’s 2 percent target and the possibility that slowing growth overseas could hold down U.S. inflation.
Evans suggested that it could be the middle of next year before the effects of falling oil prices and the strengthening dollar wane and inflation starts to rise.
Evans, a voter on the Fed’s monetary policy committee, acknowledged that his comments place him on the more “dovish” side of Fed officials. The majority of the group, including Yellen, appear to be more concerned about inflation rising above the Fed’s target than he is and more eager to raise the Fed’s short-term interest rate target after nearly seven years.
But Evans’ ideas in the past have proved influential within the committee. It was Evans, in 2011, who suggested that the Fed start a stimulus campaign by promising to keep rates low until the unemployment rate fell below 6.5 percent.
That suggestion was later adopted by the committe, under the leadership of Chairman Ben Bernanke.
Evans on Monday laid out the logic behind waiting to raise the interest rate, focusing particularly on the fact that he is not confident that the Fed will hit its 2 percent target rate.
One risk to raising rates now, he noted, is that the Fed could make a mistake like the ones made in Europe and Japan, where the central banks tried to raise interest rates too early. They were “forced to reverse course” and create even more aggressive stimulus campaigns, he said.
Another risk, Evans said, is that the Fed could damage its credibility by allowing inflation to fall well short of 2 percent. People need to believe that the Fed is as willing to let inflation go above 2 percent as it is to see it fall short of 2 percent, he said, or else the “public could begin to mistakenly believe that 2 percent inflation is a ceiling — and not a symmetric target.”
