Fed’s Evans Says He’d Welcome 2.5% Inflation Rate in U.S.
(Bloomberg) -- Federal Reserve Bank of Chicago President Charles Evans said he would welcome 2.5% inflation in the U.S. for a time in order to average out the current period in which price pressures are running below the central bank’s 2% target.
“I think we have to cross over, beyond 2%, with some momentum,” Evans said Monday during a Bloomberg TV interview with Michael McKee. “I would be quite pleased if we could get core inflation up to 2.5% for a time.”
The Chicago Fed president’s comments followed earlier remarks Monday at a virtual conference in which he predicted it would be several years before the inflation rate, which by the Fed’s preferred measure was 1.4% in August, rises back to the target, and foreshadowed a debate about when and how fast to raise interest rates once the target is achieved.
“I expect inflation to slowly improve, reaching 2% on a persistent basis in 2023 and then moderately overshooting 2% over the following few years,” Evans said at the National Association for Business Economics conference.
“We likely have a lot of work ahead of us. And it’s crucial that we acknowledge the magnitude of the job up front to help lessen the temptation to back off the overshoot too early in the process,” he said.
Fed officials announced in August that they would shift to a policy of allowing inflation to overshoot the 2% target following periods of under-running it such that inflation averages out to 2% over time. In September, they announced they would leave the central bank’s benchmark interest rate near zero at least until inflation had reached 2% and was on track to overshoot.
The blow to the economy from the coronavirus pandemic has depressed the outlook for inflation. Evans said he also doesn’t see the unemployment rate, which fell to 7.9% last month, returning to 4% until 2023.
“My forecast assumes that additional federal fiscal policy actions are coming,” Evans said. “Without adequate fiscal support before too long, I am concerned that recessionary dynamics will gain more traction and lead to a slower trajectory back to maximum employment.”
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