Fed's Evans says policy likely on hold for some time

  • 5/5/2021
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(Reuters) - Though much more optimistic about U.S. economic growth and unemployment than just a few months ago, Chicago Federal Reserve Bank President Charles Evans on Wednesday reiterated his worries about reaching the Fed’s 2% inflation goal and said he expects monetary policy to stay super-easy for some time. “Our employment mandate is within sight,” Evans said in remarks prepared for delivery to the Hyman P. Minsky Conference. But with a projected rise in inflation in coming months likely to be short-lived, “achieving our inflation goal may prove more difficult,” he said, adding: “policy is likely on hold for some time.” The Fed slashed its short-term interest rate target to near zero last March and has kept it there since, vowing not to touch it until the economy has reached full employment, and inflation has reached 2% and is on track to moderately exceed that pace for some time. It is also buying $120 billion of bonds each month to push down on longer-term borrowing costs, a pace it has pledged to keep up until it makes “substantial further progress” on both its full employment and 2% inflation goals. Evans’ view is in line with the core of Fed policymakers, including Fed Chair Jerome Powell, who say they see the economy as still quite a way from the Fed’s goals. Critics, including former Treasury Secretary Larry Summers, say the central bank’s easy policy combined with the Biden Administration’s $1.9 trillion pandemic relief package passed in March are set to light the fires of inflation the likes of which haven’t been seen since the 1970s. Evans pushed back hard on that view. A government report Friday is expected to show the U.S. unemployment rate fell to 5.8% in April, from 6% in March. With public health expected to improve as the year goes on, Evans said, “I am optimistic that the economy is poised for strong growth later this year, which will bring with it further significant improvements in the labor market.” But, he noted, the pre-pandemic economy even with 3.5% unemployment wasn’t even generating 2% inflation, let alone a worrisome upward spiral in prices. “The risk of this scenario is remote,” he said, in large part because inflation expectations have likely drifted lower than 2%. Indeed, he said, he is counting on some upward movement in inflation expectations to pull inflation higher and make real progress toward the Fed’s target. “I would not be concerned about inflation moving persistently too high unless we saw some quite outsized movements in financial market pricing at the longer maturities or in survey-based measures of inflation expectations,” he said. Reporting by Ann Saphir; Editing by Andrea Ricci Our Standards: The Thomson Reuters Trust Principles.

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