Tags: federal reserve | evans | rate | hike

Fed's Evans: Low Inflation Makes Rate Rise Too Risky in 2015

Wednesday, 25 March 2015 07:08 AM

Federal Reserve Bank of Chicago President Charles Evans, who votes on policy this year, said inflation remains too low to justify an interest-rate increase in 2015, despite “terrific” progress in reducing U.S. unemployment.

“I see no compelling reason for us to be in a hurry to tighten financial conditions until” it’s clear that inflation will reach the Fed’s 2 percent target within one or two years, Evans said in London on Wednesday. “Economic conditions are likely to evolve in a way such that it will be appropriate to hold off on raising short-term rates until 2016.”

Fed officials last week opened the door to a rate rise as early as June, while emphasizing no timetable had been set for their first increase since 2006. The benchmark federal funds rate has been held near zero since December 2008.

Evans warned that inflation would advance at a “woefully gradual pace,” not reaching 2 percent until 2018, and he saw risks that it could undershoot his forecast. One source of downward price pressure stemmed from the stronger dollar.

“Since last summer, the dollar has appreciated nearly 23 percent against major currencies,” he said. “The stronger dollar presents a clear disinflationary pressure through its influence on U.S. import prices.”

Evans explained that his worry over low inflation stemmed from the harm it could do to price expectations.

“If the lower pricing gets embedded more persistently in the longer-run inflationary expectations of households and businesses, this would make it even harder to get inflation back to its 2 percent target,” Evans told an event organized by the Official Monetary and Financial Institutions Forum, according to a text of his prepared remarks.

Core Inflation

The Fed’s preferred measure of prices, the Personal Consumption Expenditures Index, rose 0.2 in the year through January, weighed down by the plunge in oil. Excluding energy and food costs, prices rose 1.31 percent, down from 1.48 percent in the year through October.

“I would like to see core PCE inflation begin to rise above its current 1.3 percent rate in a sustainable fashion,” he said.

Economists worry prolonged low inflation can slip into deflation, or a general decline in prices, hurting growth by encouraging consumers to delay spending.

“Given uncomfortably low inflation and an uncertain global environment, there are significant risks, but few benefits, to increasing interest rates prematurely,” Evans said.

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Federal Reserve Bank of Chicago President Charles Evans, who votes on policy this year, said inflation remains too low to justify an interest-rate increase in 2015, despite "terrific" progress in reducing U.S. unemployment."I see no compelling reason for us to be in a hurry...
federal reserve, evans, rate, hike
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2015-08-25
Wednesday, 25 March 2015 07:08 AM
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