Interest rates should remain low since inflation will be below target until at least 2018, according to Federal Reserve Bank of Chicago President and Chief Executive Officer Charles L. Evans.
"All told, I think the best policy is to take a very gradual approach to normalization," with a later liftoff date than most of his colleagues support, Evans said in prepared text for delivery at a Chicago forum, released by the Fed.
In addition to a later liftoff, Evans believes "a more gradual normalization of our monetary policy setting will best position the economy for the potential challenges ahead."
In fact, Evans suggested, "it could well be appropriate for the funds rate to still be under 1 percent at the end of 2016."
Evans said he doubts the economy will reach the Fed's "inflation goal within a reasonable time frame."
While Federal Open Market Committee participants see inflation creeping toward 2% by the end of 2017, Evans' projection "is less sanguine. I expect core PCE inflation to undershoot 2 percent by a greater margin over the next two years than do my colleagues. I expect core PCE inflation to be just below 2 percent at the end of 2018."
Downside risks, Evans mentioned, include slow growth in emerging markets, most notably China, low measures of inflation compensation, as well as anecdotal evidence suggesting limited or non-existent "rising inflationary or cost pressures."
"No one is planning for higher inflation," Evans said. "My contacts just don't expect it."
While labor markets have "improved significantly," he said "there still remains some additional resource slack beyond what is indicated by the unemployment rate alone."
Housing also has not recovered as much as needed, Evans noted.
