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Fed should address falling US inflation expectations: Charles Evans

Janet Yellen believes that as the labor market tightens, inflation will rise back toward 2%, Evans still remains unsure

Reuters  |  London 

Janet Yellen
Janet Yellen, Federal Reserve chairperson

Chicago Federal Reserve Bank President on Wednesday said he is worried about a drop in expectations and called for the to respond by flagging the likelihood of higher inflation ahead.

"When I look at the downward drift in multiple expectations measures, I find it tougher to confidently buy into the idea that inflation today is just temporarily low once again," said in remarks prepared for delivery to the UBS European Conference in London.

To prevent low inflation expectations becoming entrenched, he said, "our public commentary needs to acknowledge a much greater chance of inflation running at 2-1/2 percent in the coming years than I believe we have communicated in the past."

Evans, a voter this year on Fed policy, did not say in his prepared remarks whether he would support an interest-rate hike in December, as many of his colleagues have said they would, and as markets overwhelmingly expect.

But his comments suggest he has become increasingly frustrated with falling inflation, despite an he said is headed for "continued solid growth" in 2018.

warned Wednesday that unless the Fed addresses falling inflation expectations, "we could be in for the kind of trouble that Bank of Japan has faced for so long."

Inflation by the Fed's preferred measure, core personal consumption expenditures (PCE), was just 1.3 percent in September, even though the unemployment rate, at 4.1 percent, suggests the U.

S. is at full employment.

Fed Chair has said she believes that as the labor market tightens, inflation will rise back toward 2 percent. is not so sure.

"With each low monthly reading, it gets harder and harder for me to feel comfortable with the idea that the step-down last spring was simply transitory," said. "There is a big strategic risk in failing to get core PCE inflation symmetrically around 2 percent before this economic cycle ends."

Regional Fed presidents like have varying degrees of influence on the direction of

In 2010, tried and failed to win support at the Fed for a new strategy of monetary policy known as price-level targeting that at the time he thought could have lifted troublingly low inflation.

In 2012, though, the Fed included a promise to keep rates near zero until unemployment or inflation reached certain thresholds, an idea had publicly championed for a year before it became policy.

First Published: Wed, November 15 2017. 15:39 IST