Federal Reserve Bank of Chicago President Charles Evans said he’s unlikely to call for tighter monetary policy this year.
“Strong policy accommodation continues to be appropriate,” Evans said to reporters following a speech in New York today. “I’ll be surprised if I’m advocating a tightening in policy” in 2011.
U.S. central bankers are debating how to address rising inflation and when to start tightening policy after the Fed ends its purchases of $600 billion of Treasuries in June. Richmond Fed President Jeffrey Lacker and Philadelphia’s Charles Plosser have indicated they’re concerned about prices, with Lacker saying the central bank must tighten credit before inflation gains speed.
Fed policy makers last month differed over whether to begin removing record stimulus in 2011, according to minutes of their March 15 meeting. “A few participants indicated that economic conditions might warrant a move toward less-accommodative monetary policy this year,” according to the minutes.
Consumer price inflation, excluding food and energy, is “in line with a low underlying inflation rate,” Evans said. Research has shown that oil prices usually have a “pretty insignificant effect” on core inflation, he said. The recent increase in food and energy prices has been due to “stronger demand around the world,” he said.
So-called core prices rose 1.2 percent in March from a year earlier, according to a Labor Department report today. They rose 0.1 percent from the prior month, less than the 0.2 percent increase projected by the median forecast of economists surveyed by Bloomberg News. Prices including food and fuel increased 0.5 percent for a second month.
“It’s difficult to see strong underlying inflation pressures,” Evans said. “This does not seem to be an environment where strong wage growth is likely to take place.”
Evans said that while he’s watching inflation and inflation expectations, “I am extremely doubtful we need an adjustment in monetary policy.” Inflation should “average” a 2 percent rate, he said.
“It could well be the case” that the central bank’s second round of large-scale asset purchases ends in June as planned, he said.
The Chicago Fed leader made his comments following a speech at the 20th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies organized by the Levy Economics Institute of Bard College. During the text of his speech, he said that inflation and employment were below the Fed’s objectives. “Both call for monetary policy accommodation,” he said.
Evans has led the Chicago Fed since September 2007 and is a voting member this year of the Federal Open Market Committee. He has been among the FOMC’s strongest supporters of monetary stimulus since last year. He represents a five-state region that includes Iowa and most of Illinois, Indiana, Michigan and Wisconsin.
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