At least one member of the Federal Reserve is worried about the central bank falling short of its inflation target.
“Inflation has been too low for too long,” Federal Reserve Bank of Chicago President Charles Evans said Friday.
Evans, who was delivering a speech on monetary policy in Milwaukee, suggested that other Fed officials may be wrong to think that inflation will rise from its recent low levels to the Fed’s 2 percent target.
He noted that recent “core” inflation, which sets aside food and energy prices, has been 1.3 percent over the past year and that inflation overall has generally been below the Fed’s target for the past seven years.
Low inflation, in Evans’ view, could mean that the economy is still cyclically weak and that there are spare resources and workers.
To ensure that the Fed maintains credibility about its inflation target and to accelerate the recovery, Evans said he would prefer monetary policy to be “somewhat more accommodative” than his colleagues indicated it would be at their September meeting.
At the meeting, Chairwoman Janet Yellen and other Fed officials declined to raise interest rates from the near-zero target at which they have been held since the financial crisis.
Evans suggested that he would prefer a longer and slower move to raise interest rates, saying that the Fed’s target interest rate could still be under 1 percent by the end of 2016.
Evans is a voter on the monetary policy committee, and his ideas have proved influential in the past. He was the first to suggest the idea of staking stimulus measures to a specific unemployment goal, a measure that the Fed took in 2012 with its massive bond-buying program.
In his speech Friday, Evans suggested that the risks of waiting longer to raise rates were manageable. If inflation began to rise out of control, he said, the Fed could simply raise interest rates in response. He also mentioned that “there is no problem in moderately overshooting” the Fed’s inflation goal, rather than undershooting it as they have in recent months.
