With inflation too low and the unemployment rate still higher than normal for the U.S. economy, the Federal Reserve should hold off on raising short-term interest rates until early next year, a top Fed policymaker said on Monday.
“Indeed, one could argue that we currently do not have enough policy accommodation in place,” Chicago Fed President Charles Evans told an audience in this southern Indiana manufacturing town.
A voting member this year on the U.S. central bank’s policy-setting panel, Evans told the group that while the subdued job gains across America in March were likely transitory, unemployment at 5.5 percent is still about a half a percentage point higher than it ought to be.
More pressingly in his view, inflation has been running below the Fed’s 2-percent target for years, and is likely to take until 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 in the text of remarks to the Columbus Economic Development Board.
Evans is among the most dovish policymakers at the table with Fed Chair Janet Yellen, who must manage the delicate task of deciding when to raise U.S. interest rates for the first time since 2006.
Most Fed officials, including Yellen, expect economic conditions will be ripe for higher interest rates sometime this year.
Evans, while in a minority of two at the Fed who think rate hikes will need to wait until 2016, has been influential at the policy table before, convincing his 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 than otherwise.
This time around, however, it’s unclear if Evans will be able to sway his colleagues to wait. Other Fed officials have said they will be looking hard at the next two months of economic data, which in their view could support a June rate hike.
To Evans, “there aren’t any serious costs of modestly overshooting our inflation target,” but strong risks that prematurely raising rates could undermine economic recovery.
Evans on Monday added a new thread to his tapestry of arguments against raising rates, saying 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.
Source: Reuters (Reporting by Ann Saphir; Editing by Chizu Nomiyama)