Quarles Says Fed Very Committed to Pushing Inflation Above 2%

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Federal Reserve Vice Chair for Supervision Randal Quarles says that investors should take the U.S. central bank at its word that it will deliver an overshoot of its 2% inflation target.

“I think it is very credible to expect the committee to be comfortable with inflation somewhat over our 2% target,” he said Tuesday after giving a speech on financial regulations to the Peterson Institute for International Economics. “Over time we will look to average, and I think that is a very credible commitment from the committee and I am very supportive of it.”

Quarles Says Fed Very Committed to Pushing Inflation Above 2%

The Fed in August adopted a new framework that will seeks to average 2% inflation over time and redefined maximum employment -- the other half of its dual mandate from Congress -- as a broad and inclusive objective. As a result, it will not preemptively raise interest rates as the unemployment rate declines, unless it sees evidence that inflation expectations are becoming unanchored.

Describing himself as “one of the biggest optimists” on the Fed’s rate-setting committee, Quarles said its new policy framework meant that despite his upbeat forecast for economic growth and lower unemployment, he would want to see that projection be realized in the data.

“We shouldn’t jump the gun. Let’s wait until we see those outcomes,” Quarles said. “And clearly the performance of the macro economy, and the performance of monetary policy, not just over the last decade but really even 15, 20 years, would argue that that leads to superior outcomes.”

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