Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Fed's Evans sees slow inflation rise, counsels patience on rate decision

Published 10/13/2014, 02:49 PM
Updated 10/13/2014, 02:49 PM
© Reuters Charles Evans, President and CEO, Federal Reserve Bank of Chicago, takes part in a panel discussion titled "Twist and Shout: The Limits of U.S. Monetary Policy" at the Milken Institute Global Conference in Beverly Hills, California

© Reuters Charles Evans, President and CEO, Federal Reserve Bank of Chicago, takes part in a panel discussion titled "Twist and Shout: The Limits of U.S. Monetary Policy" at the Milken Institute Global Conference in Beverly Hills, California

By Howard Schneider

INDIANAPOLIS (Reuters) - The Federal Reserve should err on the side of caution in its coming decision about when to raise interest rates for fear of upending the U.S. recovery in a weak world economy, Chicago Federal Reserve President Charles Evans said on Monday.

"The biggest and costliest downside risk is that in our haste to get back to 'business as usual' monetary policy, we could stall progress and backtrack to the economic circumstances of recent years," with subpar growth, low inflation, and near-zero interest rates, Evans said in a speech to a teacher's investment conference in Indiana.

Evans repeated that he thinks interest rates probably should not be increased until the start of 2016, perhaps a half year later than investors currently expect and later than many of his Fed colleagues.

"We should be exceptionally patient," in raising rates, even to the point of letting inflation rise above the Fed's target, he said.

As it stands, Evans projects the economy won't hit the Fed's full-employment and two percent inflation goals for up to three years, during which the Fed could leave interest rates at stimulative levels while cautiously inching them higher.

His comments and others over the weekend emphasized how rising concern about the global economy is complicating the Fed's internal debate about an initial interest rate increase expected next year.

With the euro zone weak and China slowing, there is little inflationary push from abroad. Meanwhile the rising value of the dollar, Evans and other Fed officials have noted, may weigh down inflation by making imported goods cheaper, while slowing U.S. exports and output.

In remarks that cautioned about European and Japanese difficulties in raising inflation, Evans said he sees little price pressure, weak wage growth, and no change in public expectations about price levels. Inflation expectations are considered one gauge of future prices, with rising expectations, for example, causing households and businesses to behave in a way that pulls prices higher.

"I am concerned about the possibility that inflation will not return to our 2 percent target within a reasonable period of time," Evans said.

Evans does not currently have a vote on the Fed's rate-setting committee, but will join it in January.

His comments, a summary of what might be considered the dovish end of the Fed's policy spectrum, said that weak wage growth and several measures of labor market slack mean the U.S. economy still has ground to make up from the sharp 2007 to 2009 financial crisis and recession. He suggested fiscal policy, in the form of increased investment on infrastructure, may be needed to increase demand, create jobs and eventually raise prices.

There remains "a significant gap between our goal and current conditions," he said.

© Reuters. Charles Evans, President and CEO, Federal Reserve Bank of Chicago, takes part in a panel discussion titled

(Reporting By Howard Schneider; Editing by Meredith Mazzilli and Andrew Hay)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.