Evans says fed must convince public it sees low-inflation issue

Federal Reserve officials need to show a commitment to reaching their goal on inflation, which has generally been running below target since the financial crisis, Chicago Fed President Charles Evans said.

“We have to assure the public that we recognize the new low-inflation environment and that we are not overly conservative central bankers who see our inflation target as a ceiling,” Evans said Monday in remarks prepared for a speech in New York.

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Charles Evans, president of the U.S. Federal Reserve Bank of Chicago, speaks during the American Economic Association (AEA) annual conference in Chicago, Illinois, U.S., on Friday, Jan. 6, 2017. Evans said he is "optimistic" that the fundamentals of the U.S. economy will remain strong. Photographer: Daniel Acker/Bloomberg

Evans is a voter this year on the Fed’s policy-setting Federal Open Market Committee and supported its decision last week to raise interest rates for a second time in 2017. He said on Monday that “the current environment supports very gradual rate hikes and slow preset reductions in our balance sheet.”

A widely-tracked measure of the underlying inflation trend that excludes volatile food and energy prices slowed to 1.7 percent last month, marking the fourth straight month of declines, according to data released by the U.S. Labor Department.

Since 2009, so-called “core” inflation that excludes food and energy components “has generally under-run 2 percent -- and often by substantial amounts,” Evans said Monday. “This is eight full years below target. This is a serious policy outcome miss.”

In updated economic projections released following last week’s FOMC meeting, the median participant on the 16-member committee expected core inflation would rise to the Fed’s 2 percent target by the end of next year.

“My inflation outlook is not quite as sanguine as this projection. I also see downside risks to this outlook,” Evans said. “So I believe we need to demonstrate a strong commitment to hitting our symmetric inflation objective sooner rather than later. That is, we need to pursue an outcome-based policy to actually help us achieve our inflation goal.”

Bloomberg News
Monetary policy Federal Reserve Bank of Chicago Federal Reserve FOMC
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