It is unlikely the United States will see either harmful deflation or great inflation, and it remains too early to begin raising the Fed funds rate target, Federal Reserve Bank of Chicago president Charles Evans said yesterday.
“Stimulative policies combined with the economy’s resilient market forces will, over time, reduce resource gaps,” he told the Council on Foreign Relations, according to prepared remarks of his speech released by the Fed. “Deflation has been averted. And as the economy continues to improve, and when we see rising inflation pressures, Fed policy will respond aggressively. Having said this, the main threat to these outcomes would be if clear danger signals were ignored or if central bank independence were compromised.”
The Fed acted quickly to provide liquidity to markets and prevent failures of large banking institutions, Evans said, but the difficult part will be “to prevent a future increase in inflation above our price stability objective.”
