The Marriner S. Eccles Federal Reserve building stands in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

Evans Says Fed Must Convince Public It Will Allow More Inflation

(Bloomberg) -- The Federal Reserve should take a more aggressive stance toward boosting inflation and stop talking so much about using interest rates to ensure financial stability, Chicago Fed President Charles Evans said.

Evans expressed concerns Wednesday that the public was losing faith in policy makers’ commitment to bring inflation back up to their 2 percent target. The central banker has consistently argued for a slower pace of interest-rate increases than many of his colleagues on the policy-setting Federal Open Market Committee.

“In order to dispel any impression that 2 percent is a ceiling, our communications should be much clearer about our willingness to deliver on a symmetric inflation outcome, acknowledging a greater chance of inflation at 2.5 percent in the future than what has been communicated in the past,” he said in remarks prepared for a speech in London.

U.S. inflation has surprised central bankers and economists by decelerating in 2017, in the ninth year of an economic expansion that has brought unemployment to a 16-year low. The Fed’s preferred measure, excluding food and energy components, was 1.3 percent in September, down from 1.9 percent in January.

Fed officials have mostly written off the decline as owing to “transitory” and “idiosyncratic” factors, and expressed confidence that inflation will soon rise to 2 percent as the labor market continues to tighten.

‘Persistent Factors’

“I am concerned that persistent factors are holding down inflation, rather than idiosyncratic transitory ones,” Evans said, citing declines in various measures of inflation expectations in recent years.

“By and large, central bankers are conservative types who view their most important task as preventing an outbreak of 1970s-style inflation,” he said. “So perhaps then it’s not surprising that we as a group have not convincingly demonstrated to the public our commitment to a symmetric inflation target.”

While consumer price inflation has receded this year, stock indexes have hit record highs. That has helped shift the focus toward financial stability as a possible justification for continuing to raise interest rates.

“I also worry that giving too much prominence to financial stability considerations in discussions of monetary policy could erode the public’s confidence in our commitment to our 2 percent inflation objective,” Evans said. “Financial stability is obviously very important. But there are better tools than monetary policy for promoting it.”

©2017 Bloomberg L.P.