Federal Reserve Bank of Chicago President Charles Evans said Monday rate raises are likely unwarranted until some time well into next year due to inflation falling persistently below levels where central bankers want it to be.
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"Before raising rates, I would like to have more confidence than I do today that inflation is indeed beginning to head higher," Mr. Evans said. "I believe that it could well be the middle of next year before the headwinds from lower energy prices and the stronger dollar dissipate enough so that we begin to see some sustained upward movement in core inflation. After liftoff, I think it would be appropriate to raise the target interest rate very gradually," Mr. Evans said.
The official's words come from the text of a speech prepared for delivery before the Marquette University Business Leaders Forum in Milwaukee. Mr. Evans has been a consistent opponent of raising rates for some time, believing that while the Fed has been making progress getting the job market back on track, it hasn't fared nearly as well when it comes to getting price pressures back to the 2% level officially targeted by the central bank.
The official spoke amid an active debate about what lies ahead for the Fed. Only recently many observers, including a number of Fed officials, had expected the central bank to raise rates when it met earlier this month. The Fed stood pat while it took stock of unsettled international developments in the path of the U.S. economy. Most Fed officials still believe they will raise rates this year, and influential New York Fed leader William Dudley said earlier Monday he still foresees pushing the now near-zero fed target rate higher before 2015 ends.
That said, overly weak inflation continues to complicate the Fed's plans. The central bank has failed to hit its 2% price target for over three years, and it doesn't expect to get there until 2018. Forecasts of rising inflation has proved consistently wrong, yet officials remain optimistic that normal economic dynamics should get prices higher over time.
Mr. Evans wants to see hard evidence prices will rise before boosting the cost of borrowing. In his speech, he said raising rates prematurely could come with real costs for the central bank, so he would like to see officials move cautiously.
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"Policy needs to validate our claim that we aim to achieve our 2% inflation target in a symmetric fashion," Mr. Evans said, adding he wouldn't have a big problem overshooting the goal by a modest amount for a short period. "Failure to defend our inflation goal from when we are considerably below target may weaken the credibility of this claim," he said.
Mr. Evans said he doesn't expect to hit a 2% inflation level until the end of 2018. But he was more upbeat about hiring. "Economic growth appears to have enough momentum that I am fairly confident that we will reach our maximum employment goal within a reasonable time," he said.