Fed's Evans: U.S.Might Not Hit Target Inflation Rate Until 2018

        By Ben Kesling and Michael S. Derby
        By Ben Kesling and Michael S. Derby
        CHICAGO-- Federal Reserve Bank of Chicago President Charles Evans said Wednesday the U.S. might not hit the Fed's target inflation rate until 2018 and he doesn't advocate raising interest rates until 2016.
        Mr. Evans, long-known as a proponent of accommodative policies, said the economy is currently exhibiting strong signs of growth, but low interest rates in the U.S. and weak economic performance elsewhere in the world should give the Federal Reserve pause as it determines when, and by how much, to raise interest rates.
        "We should be patient about maintaining the stance of our current policies," said Mr. Evans at an event sponsored by the University of Chicago and held at the Federal Reserve Bank of Chicago. "We should be in no hurry to raise interest rates."
        The Chicago Fed President said he would advocate hewing to "explicit" numerical targets for Fed policy, specifically, ensuring that a target 2% inflation is hit before reining in accommodative policy.
        The Fed has shown a lack of success thus far by not being able to goad rates up to that 2% mark, he said. "We ought to provide an appropriate amount of accommodation to hit the inflation goal," he said.
        Mr. Evans, who will hold a voting slot on the monetary policy setting Federal Open Market Committee this year, spoke in the wake of the release of the meeting minutes from the central bank's mid-December policy meeting.
        At that gathering, officials continued their preparations for what most believe will be an increase in what are now near zero short-term interest rates some time in the middle of this year. The meeting minutes reaffirmed that any move to boost short-term interest rates is unlikely to happen until after the spring.
        Mr. Evans said only one member of the committee advocates for more accomodative policy than does he. He didn't identify that person. Mr. Evans said although he doesn't support what is known as liftoff until 2016, if it happens, he would likely advocate for a very gradual increase of rates, or a "shallow path" in order to not put undue deflationary pressures on an economy struggling to hit the Fed's 2% target.
        He said the U.S. housing market hasn't shown as robust signs of growth as he would like, but a host of other indicators give him confidence that the economy could be "well past" the poor performance since the recession.
        The FOMC minutes also showed officials turning a wary eye toward global economic difficulties. Mr. Evans said that Japan has been "on the sidelines" for 20 years, Europe is "sluggish" and China has begun "decelerating."
        Central bankers continue to expect very weak inflation to rise back over time to their 2% target, and they view the sharp drop in oil prices as a clear positive for the U.S. economic outlook. Mr. Evans said the drop in oil prices would likely have only a temporary effect in dampening inflation, but did not say how long that temporary effect might last.
        The FOMC minutes also came ahead of Friday's release of the December jobs report. Mr. Evans is scheduled to be on the CNBC television channel immediately in the wake of the release of data that's expected to show further solid job gains.
        Mr. Evans has been a consistent supporter of the Fed taking aggressive action to help spur growth, but he has made few public comments on the economy or monetary policy in some time.
        As the Fed weighs the timing and pace of interest rate increases, it does so in an environment where already weak price pressures are expected to fall even further below its 2% price target in coming months. Some analysts have noted that if the Fed meets the expected timing of rate increases, it could be moving to boost borrowing costs at a time where headline inflation numbers are in negative territory, which would be unprecedented.
        (END) Dow Jones Newswires

        January 07, 2015 20:57 ET (01:57 GMT)

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