Concern that “persistent factors” rather than “transitory ones” could be keeping inflation low pushed Federal Reserve Bank of Chicago President Charles L. Evans to dissent on the Federal Open Market Committee vote on the federal funds rate Wednesday.

“I thought the decision was a close one, and I carefully considered all of the arguments for and against raising rates,” Evans said in a statement. “In the end, I did not share the majority’s view that the balance of evidence favored a rate increase.”

While growth “is on a solid footing,” which would support a rate hike, inflation remains below where the Fed wants it, he said. “I am concerned that persistent factors are holding down inflation, rather than idiosyncratic transitory ones. Namely, the public’s inflation expectations appear to me to have drifted down below the FOMC’s 2 percent symmetric inflation target. And I am concerned that too many observers have the impression that our 2 percent objective is a ceiling that we do not wish inflation to breach, as opposed to the symmetric objective that it really is; that is, we would like to see the odds of inflation running modestly below 2 percent equal the odds of it running modestly above over the long run.”

Leaving rates unchanged, he suggested, would have helped raise inflation expectations and inflation.

“Such a pause in the policy normalization process also would have better allowed the Committee time to assess the progress of incoming inflation data,” Evans noted. “Many analysts think the drop in core inflation this past spring was probably transitory. Waiting a while longer before raising rates would have given us a chance to see whether or not that was true. Hopefully, it will turn out to be the case that the inflation decline was largely transitory and that a gradual pace of rate increases can eventually take place in a context that delivers greater confidence that inflation will reach 2 percent over the medium term.”

Federal Reserve Bank of Chicago President Charles Evans
Federal Reserve Bank of Chicago President Charles Evans Bloomberg News

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