Arguing that the labor market recovery is not yet complete, Federal Reserve Bank of Chicago President and Chief Executive Officer Charles L. Evans Monday reiterated his call for patience on monetary policy and restated his discomfort with calls to change policy sooner rather than later.
"As I think about the process of normalizing policy, I conclude that today's risk-management calculus says we should err on the side of patience in removing highly accommodative policy, Evans said in text, prepared for delivery before the National Association for Business Economics, released by the Fed. "We need to solidify our confidence that our ultimate exit from the [effective zero lower bound] ZLB will occur smoothly - and in a way that sustains our escape from it. A corollary to this is we should not shy away from policy prescriptions that generate forecasts of inflation that moderately overshoot our 2 percent target for a limited time."
This strategy, he said, balances costs and benefits. Further, he noted, "it would leave me with much more confidence that inflation will not stall out below target once we start raising rates."
Dropping back to ZLB after raising rates, Evans said, is "the last thing we want to do."
"To summarize, I am very uncomfortable with calls to raise our policy rate sooner than later. I favor delaying liftoff until I am more certain that we have sufficient momentum in place toward our policy goals," he said. "And I think we should plan for our path of policy rate increases to be shallow in order to be sure that the economy's momentum is sustainable in the presence of less accommodative financial conditions. I look forward to the day when we can return to business-as-usual monetary policy, but that time has not yet arrived."
Separately, in a televised interview, Evans said it may be appropriate to wait until after the summer of 2015 for liftoff. He said it "will be quite some time before it becomes appropriate to
raise rates."
