Evans Says He Supports Fed's Low-Rate Guidance -- Update
24 September 2020 - 6:40AM
Dow Jones News
By Michael S. Derby
Federal Reserve Bank of Chicago leader Charles Evans pushed back
against any idea that he wants to raise rates before overshooting
the U.S. central bank's 2% inflation goal.
Mr. Evans on Wednesday weighed in on comments he made a day
earlier that some saw as suggesting he had a more hawkish view on
rate policy than his colleagues. He said Tuesday that the Fed might
be able to raise rates before achieving 2% inflation on
average.
"I think this gets at one of the communications challenges that
we're facing," Mr. Evans said Wednesday in a virtual appearance. "I
really thought that I was pretty much reading out what our
September [Federal Open Market Committee] statement was saying." He
acknowledged that among Fed officials he's on the dovish side, or
more inclined to tolerate higher inflation to help bring about
better job market performance.
The Fed last week gave new interest-rate guidance. After their
rate-setting FOMC meeting, officials said they would keep rates at
near-zero levels until maximum employment is achieved and inflation
moves up to 2% on its way to overshooting that level.
The new guidance built on the Fed's announcement at the end of
August that it would seek to allow inflation to go over its 2% goal
to make up for periods when it has fallen short. The Fed's new
system suggests it could be years before short-term rates move off
rock-bottom levels: The Fed's forecasts from last week indicate no
move through at least 2023.
"We've indicated that we're going to keep the federal-funds
rate, you know, at our zero to a quarter percent [range] until
inflation gets to 2%, we get to employment conditions that are like
maximum employment, and inflation is on track to exceed 2%," Mr.
Evans said Wednesday. "We just have to be pretty clear that two and
a half percent inflation for some period of time is likely in the
cards if we're doing our jobs right."
He also said that once the Fed gets past 2% inflation, any Fed
rate increases then may not create notable headwinds to growth. "We
can begin to raise the funds rate and it will still be
accommodative. That's the language in the statement that says the
funds rate will be accommodative, as we, you know, continue to seek
maximum employment and inflation at 2%."
Mr. Evans told reporters after his remarks that while he sees
inflation hitting 2% within the Fed's current forecast horizon
going out to 2023, he doesn't see an increase in rates happening
during that period.
Mr. Evans said in his appearance Wednesday he believes Fed rate
policy, coupled with asset buying, is set appropriately for the
challenges facing the nation. The official also said other
government actions are even more powerful given the nature of the
coronavirus pandemic: "Fiscal policy support and improved public
safety are really the key elements" to get the economy back on
track.
Mr. Evans said he believes today's 8.4% unemployment rate could
fall to 7% by the end of this year, and to 5.5% by the end of next
year. But he added that rapid recovery does depend on some amount
of fiscal support.
"I have been surprised the U.S. economy has been as resilient
since June as it has," Mr. Evans said, given the renewed virus
outbreaks. "One way or another, for good or bad, we seem to be
powering through 200,000 deaths of American people, and we are
trying to keep people safe as we go through and produce and all of
this. I might have thought there'd be a little more concern in
terms of consumer confidence. But the economy has done better than
that."
Mr. Evans said he doesn't see much to be gained by increasing
the Fed's pace of asset buying but that it could change in the
future. The official also said massive U.S. deficits right now are
necessary to provide aid in the coronavirus crisis and that he sees
no issues financing that red ink.
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
September 23, 2020 16:25 ET (20:25 GMT)
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