Inflation Low, Unemployment High, Consumers Saving = No Rate Hike Soon
With inflation too low and the unemployment rate higher than normal, the Fed should hold off on raising short-term interest rates until early next year, a top Fed policymaker said Monday.
“Indeed, one could argue that we currently do not have enough policy accommodation in place,” Chicago Fed President Charles Evans said in his speech Monday.
A voting member this year on the US central bank’s policy-setting panel (FOMC), Mr. Evans said that while the subdued job gains across America in March were likely transitory, unemployment at 5.5% is still about a half a percentage point higher than it ought to be.
More pressingly in his mind, inflation has been running below the Fed’s 2% target for years, and is likely to take until Y 2018 before it returns to that target, he said.
“I likely will not feel confident enough to begin to raise rates until early next year,” he said.
Mr. Evans is among the most dovish policymakers at the table with Fed Chair Janet Yellen, who must manage the task of deciding when to raise US interest rates for the 1st time since Y 2006.
Mr. Evans has been influential at the policy table in the past, convincing fellow policymakers a few years ago to link policy to specific economic outcomes in a move that pushed Fed policy into a more accommodative stance.
It is unclear if Mr. Evans will be able to sway his colleagues to wait.
Other Fed officials said they will be looking hard at the next 2 months of economic data, which in their view could support a June rate hike.
To Mr. Evans, “there are not serious costs of modestly overshooting our inflation target,” but strong risks that prematurely raising rates could undermine economic recovery.
Mr. Evans Monday said that low inflation and labor slack suggest that the equilibrium federal funds rate has not reached the point that the Fed is providing too much accommodation.
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