Charles Evans Says Fed Can Be Patient During Tame U.S. Inflation

(Bloomberg) -- The Federal Reserve can take some time to assess downside risks to the economy because inflation isn’t threatening to take off, said Chicago Fed President Charles Evans.

“If the downside risks dissipate and the fundamentals continue to be strong, I expect that eventually the fed funds rate will rise a touch above its neutral level,” increasing to a range of 3 percent to 3.25 percent, Evans said Wednesday in a speech in Riverwoods, Illinois.

“Because inflation is not showing any meaningful sign of heading above 2 percent in a way that would be inconsistent with our symmetric inflation objective, I feel we have good capacity to wait and carefully take stock of the incoming data and other developments,” he said.

Evans’s comments echo those of Fed Chairman Jerome Powell, who during a Jan. 4 panel discussion in Atlanta cited muted inflation data as a reason Fed officials could afford to be patient with further interest-rate increases amid recent turmoil in global financial markets.

The S&P 500 index of U.S. stocks has fallen 12 percent since September amid a slide in oil prices. Evans attributed the volatility to investor concerns about global growth, Brexit negotiations in the U.K., trade wars, dysfunction in Washington, and Fed tightening.

“Developments in the first half of 2019 will be very important for making this assessment of our future monetary policy actions,” Evans said.

Despite the risks, the Chicago Fed chief was upbeat about the outlook.

“Incoming data on economic activity generally continue to be strong -- witness the December jobs report,” he said. “Moreover, the most recent reports from my business contacts support these data.”

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