“If we try to fine-tune a very modest inflation overshoot of only a 10th or two, we run a very large risk of failing to achieve our 2% averaging goal within any reasonable amount of time,” Evans said in the text of remarks he’s scheduled to deliver Monday.
“For me, getting inflation moving up with momentum and delivering rates around 2.5% is important for achieving on our inflation objective in as timely a manner as possible,” he said.
Evans is a voter this year on the Fed’s interest-rate-setting panel, the Federal Open Market Committee.
Under its new monetary policy framework, set out by Chair Jerome Powell in August, the Fed has pledged to pursue inflation that averages 2% over time. That implies allowing for price pressures to overshoot after periods of weakness. In the past, officials had always aimed for 2%, regardless of prior misses.
Evans, participating in a panel discussion as part of the American Economic Association’s annual meeting, stressed that policy makers can adjust more easily if they end up keeping interest rates too low for too long than if they raise rates too soon.
He said he expected it would take years for inflation to reach an average of 2%, though he wouldn’t specify what time period the Fed would apply in calculating that average.
“We are not going to follow a strict numerical formula for moving policy,” he said. “It likely will take years to get average inflation up to 2%, which means monetary policy will be accommodative for a long time. This translates into low-for-long policy rates, and indicates that the Fed likely will be continuing our current asset purchase program for a while as well.”
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Source: Economy - investing.com
