Tags: federal reserve | inflation | interest rate | hike

Fed's Evans: Rate Increases Shouldn't Start Until 2016

Wednesday, 04 March 2015 09:26 AM

The Federal Reserve should delay interest-rate increases until next year in order to bring inflation back up to the central bank’s 2 percent target by 2018, said Chicago Fed President Charles Evans.

Refraining from raising rates this year “is a critical element in my approach to generating higher inflation,” Evans said in remarks prepared for a speech on Wednesday in Lake Forest, Illinois.

“Even with this delay in raising short-term rates, my forecast is that we will not actually achieve 2 percent inflation until 2018.”

The Fed’s preferred measure of inflation, the price index of personal consumption expenditures, rose 0.2 percent from a year earlier in January, while the core measure, which excludes prices of food and energy, rose 1.3 percent over the same period.

Fed officials are debating when to raise the benchmark interest rate for the first time since 2006, with most officials predicting an increase some time this year.

Many have been willing to look through recent low inflation readings, citing the plunge in oil prices last year as a factor temporarily weighing on inflation.

Evans, who votes this year on the policy-making Federal Open Market Committee, said the decline in oil prices is a net positive for U.S. economic activity, but cautioned that it could have wider ramifications for prices in general.

“If lower energy and import prices resulted in just a one-time drop in consumer prices, then they wouldn’t be an issue for monetary policymakers to worry about,” he said.

“But if the lower pricing gets embedded more persistently in underlying trends, it is problematic — especially if ultimately it lowers longer-run inflationary expectations of households and businesses.”

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The Federal Reserve should wait until the first half of 2016 before raising interest rates, a top U.S. central banker said on Wednesday, or risk undermining the very recovery it has helped engineer.
federal reserve, inflation, interest rate, hike
Wednesday, 04 March 2015 09:26 AM
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