U.S. labor markets are strong and the consumer is really “picking up the pace,” though inflation remains too low and declining inflation expectations are a cause for concern, said Federal Reserve Bank of Chicago President Charles Evans.
Evans, one of the U.S. central bank’s most dovish officials who favors delaying rate hikes until inflation advances, said there had been progress on the Fed’s preferred measure of price pressures excluding volatile food an energy components.
“We’ve finally gotten core PCE inflation of 1.7 percent,” he told the Council on Foreign Relations in New York Tuesday. “We’re close, we’re getting there, and if I had even more confidence about getting to 2 percent I’d feel better about monetary policy re-normalization. We’ll see how that goes.”
Investors expect the Federal Open Market Committee to lift the target for its policy benchmark by a quarter percentage point when it meets next month. It said on Nov. 2 that “the case for an increase in the federal funds rate has continued to strengthen.”
Evans, who will vote on the FOMC next year, said there were reasons to “have not quite as much confidence that we’re going to get to 2 percent and we’re going to get there quickly,” chief of which was expectations.
“I am worried that inflation expectations have been moving down in a way that’s not consistent with 2 percent,” he said. The way to change that was to assure the public the Fed would meet its goal and “in order to do that, we’re not going to pull back too quickly,” he said.
“I’m probably the only FOMC participant who uses the word ‘overshooting’ in their speeches for inflation,” Evans said. “I don’t think it’s a crime if we were to overshoot.”
Speaking on the day that U.S. voters go to the polls to chose Democrat Hilary Clinton or Republican Donald Trump as the next president, Evans avoided direct comment on the election. He did say that more aggressive investment in public infrastructure could be economically productive.
“Infrastructure investment strikes me as something we need to do anyway, so why not do it when interest rates are lower,” he said.