There is “no compelling reason” to tighten monetary policy until inflation rises, Federal Reserve Bank of Chicago President Charles Evans said Monday.
Speaking at a business event in Columbus, Ind., Evans struck a dovish tone on the Fed’s looming decision regarding when to raise short-term interest rates.
The Fed has held rates near zero since late 2008 in an effort to stimulate the economy, but with the jobs outlook improving, it now faces the risk that it could hold rates too low for too long, stoking too-high inflation or financial bubbles.
Evans said Monday that the economic recovery is still underway, and that he expects job growth to continue. He downplayed recent weak reports on payroll growth and gross domestic product as “transitory.”
Nevertheless, he suggested in his prepared remarks that analysis done by his regional bank found that the unemployment rate consistent with a healthy economy is 5 percent, which is lower than the current 5.5 percent.
And he added that “simply put, inflation is too low.”
Inflation was just 1.3 percent annually through March by the Fed’s preferred gauge, the Bureau of Economic Analysis reported Thursday. The Fed’s favored inflation statistic sets aside volatile energy and food prices.
The Fed’s goal for inflation is 2 percent in the long run. Inflation would not have to hit 2 percent for the Fed to raise rates, Evans said, but the Fed would have to see inflation at least rising to 2 percent in the forecast. Currently, his own forecast doesn’t have inflation hitting the target until 2018.
Evans is a voting member of the Fed’s monetary policy committee, which is set to meet next in June. Although the committee has said that a rate increase could come at any meeting, investors now don’t expect it to come until later in the year.
Evans is one of the more “dovish” members of the group. He noted Monday that he is one of just two members of the committee who projected in March that the Fed would not raise rates from zero until 2016.
