{"id":9606,"date":"2015-03-04T17:46:36","date_gmt":"2015-03-04T23:46:36","guid":{"rendered":"http:\/\/news.medill.northwestern.edu\/chicago\/?p=9606"},"modified":"2015-03-04T17:46:36","modified_gmt":"2015-03-04T23:46:36","slug":"chicago-fed-president-freeze-rates-until-2016","status":"publish","type":"post","link":"https:\/\/news.medill.northwestern.edu\/chicago\/chicago-fed-president-freeze-rates-until-2016\/","title":{"rendered":"Chicago Fed president: freeze rates until 2016"},"content":{"rendered":"

By Lucy Ren<\/p>\n

Charles Evans, president of the Federal Reserve Bank of Chicago, said the Fed should \u201chold off on raising short\u2013term rates until 2016\u201d in order to achieve the 2 percent inflation objective.
\n<\/p>\n

\n

What’s PCE?<\/h1>\n

The Personal Consumption Expenditures price index, as the principle measure of inflation favored by Evans, is compiled by measuring the costs of goods and services that consumers purchase on a daily basis.<\/p>\n<\/div>\n

\u201cInflation is too low,\u201d said Evans at the 2015 Economic Breakfast<\/a> in Lake Forest, Ill. on Wednesday. He stated that the Federal Open Market Committee should \u201crefrain from raising the federal funds rate until conditions indicate much greater confidence in forecasts of inflation getting to 2 percent in a year or two.\u201d<\/p>\n

Evans holds a vote this year on the rate-setting FOMC. In FOMC\u2019s latest projections made in December, only two out of the 17 participants held that it would be appropriate to raise rates after this year.<\/p>\n

Federal Reserve Chairwoman Janet Yellen reiterated the \u201cpatient\u201d guidance for a future interest rate hike in her testimony before Congress<\/a> last week.<\/p>\n

[field name=”pcepriceindex”]<\/p>\n

Since 2012, the FOMC has set an explicit longer-run goal for inflation of 2 percent as measured by the year-over-year rate of change in the Price Index for Personal Consumption Expenditures. \u201cCurrently, core PCE inflation is 1.3 percent compared with a year ago,\u201d Evans noted.<\/p>\n

Evans argued that there is \u201cno compelling reason\u201d to \u201ctighten financial conditions\u201d before the target has been reached.<\/p>\n

[field name=”audioembed”]<\/p>\n

Tim Newman, vice president and wealth management advisor at Merrill Lynch Wealth Management, said after the speech that\u00a0Evans is \u201cfairly dovish\u201d in believing the economy is more fragile than some other Fed officials.<\/div>\n

Evans predicted that even with the delay in raising the short-term interest rate, the U.S. economy \u201cwill not actually achieve 2 percent inflation until 2018.\u201d He said the rise in inflation will be \u201cat a woefully gradual pace.\u201d<\/p>\n

\"Evans<\/a>
Evans reiterated the importance of reaching the inflation target at the Q&A session after his speech. (Lucy Ren\/Medill)<\/figcaption><\/figure>\n

\u201cWe\u2019ve been under-running for six years,\u201d Evans noted as he reiterated the importance of achieving the inflation target. He declared that \u201cprolonged and significant deviations of actual inflation from what consumers and businesses are expecting\u201d could impose significant costs to the economy as people make long-term investment decisions.<\/p>\n

\u201cI think it\u2019s an important credibility issue that we get up to 2 percent within a reasonable period of time,\u201d Evans said during a question-and-answer session after the speech. \u201cIf we were to get stuck below 2 percent, then people would start to question whether or not 2 percent is actually our object. And that would have negative implications for interest rate, lending and resources allocation.\u201d<\/p>\n

\n

Related Stories<\/h1>\n

Yellen: Labor Market not Ready for Interest Rate Hike<\/a><\/p>\n<\/div>\n

Evans estimates the longer-run normal rate of unemployment to fall to 5 percent, 0.2 to 0.5 percentage point lower than most FOMC participants\u2019 estimation last December.<\/p>\n

Evans said he would be \u201cconfident that inflation is heading higher\u201d when he sees \u201ca pickup in the year-over-year rate of change in the price index,\u201d \u201cstronger growth in wages and other forms of labor compensation\u201d and more optimistic inflation expectations, specifically, when \u201cmore evidence that the public and financial markets expect that inflation will be rising\u201d with the Fed\u2019s objective.<\/p>\n

[field name=”labor”]<\/p>\n

Referring to Evans\u2019 remark on \u201clabor compensation,\u201d Patty Loris of Dorion Gray Retirement Planning Inc.said she is concerned about wage growth not in line with the rise in productivity in the labor market.<\/div>\n
<\/div>\n

Evans pointed out that the financial market participants \u201cexpect the pace of rate increases to be even slower than FOMC participants do.\u201d He recalled the most recent reading on market expectations to be \u201ca bit above 1 percent\u201d at the end of 2016, \u201ca full percentage point below the median FOMC forecast,\u201d he added.
\n[field name=”comment”]<\/p>\n

Loris commented on what she has learned from Evans\u2019 speech.<\/div>\n

Evans said he \u201csimply does not see high costs\u201d to the scenario of \u201cwaiting too long to raise the short-term interest rate,\u201d and subsequently, \u201cinflation picking up faster than we now expect.\u201d He opined that even if the Fed overshot the target, it would still have \u201cample time to address the problem with moderate increases in interest rates\u201d given the \u201cinertia in inflation.\u201d<\/p>\n

Evans said the dramatic decline in oil prices and the appreciation of the dollar can be \u201cpositive developments for U.S. economic activity,\u201d but if the lower pricing \u201cgets embedded more persistently,\u201d the 2 percent target for inflation would be harder to reach because the weaker pricing could lower \u201clonger-run inflationary expectations.\u201d<\/p>\n

Photo at top: Chicago Fed’s Charles Evans talked about inflation and patience in normalizing monetary policy in Lake Forest, Ill. (Lucy Ren\/Medill)<\/div>\n","protected":false},"excerpt":{"rendered":"

By Lucy Ren Charles Evans, president of the Federal Reserve Bank of Chicago, said the Fed should \u201chold off on raising short\u2013term rates until 2016\u201d in order to achieve the 2 percent inflation objective.<\/p>\n","protected":false},"author":29,"featured_media":9613,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[27,30,1,243],"tags":[],"class_list":["post-9606","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-public-affairs","category-uncategorized","category-winter-2015"],"yoast_head":"\nChicago Fed president: freeze rates until 2016 - Medill Reports Chicago<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/news.medill.northwestern.edu\/chicago\/chicago-fed-president-freeze-rates-until-2016\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Chicago Fed president: freeze rates until 2016 - Medill Reports Chicago\" \/>\n<meta property=\"og:description\" content=\"By Lucy Ren Charles Evans, president of the Federal Reserve Bank of Chicago, said the Fed should \u201chold off on raising short\u2013term rates until 2016\u201d in order to achieve the 2 percent inflation objective.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/news.medill.northwestern.edu\/chicago\/chicago-fed-president-freeze-rates-until-2016\/\" \/>\n<meta property=\"og:site_name\" content=\"Medill Reports Chicago\" \/>\n<meta property=\"article:published_time\" content=\"2015-03-04T23:46:36+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/news.medill.northwestern.edu\/chicago\/wp-content\/uploads\/sites\/3\/2015\/03\/feature-evans.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1100\" \/>\n\t<meta property=\"og:image:height\" content=\"825\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"lucyren7\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"lucyren7\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/news.medill.northwestern.edu\/chicago\/chicago-fed-president-freeze-rates-until-2016\/\",\"url\":\"https:\/\/news.medill.northwestern.edu\/chicago\/chicago-fed-president-freeze-rates-until-2016\/\",\"name\":\"Chicago Fed president: freeze rates until 2016 - Medill Reports Chicago\",\"isPartOf\":{\"@id\":\"https:\/\/news.medill.northwestern.edu\/chicago\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/news.medill.northwestern.edu\/chicago\/chicago-fed-president-freeze-rates-until-2016\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/news.medill.northwestern.edu\/chicago\/chicago-fed-president-freeze-rates-until-2016\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/news.medill.northwestern.edu\/chicago\/wp-content\/uploads\/sites\/3\/2015\/03\/feature-evans.jpg\",\"datePublished\":\"2015-03-04T23:46:36+00:00\",\"author\":{\"@id\":\"https:\/\/news.medill.northwestern.edu\/chicago\/#\/schema\/person\/84daf34e2c92d584a42554a1fea6da6f\"},\"breadcrumb\":{\"@id\":\"https:\/\/news.medill.northwestern.edu\/chicago\/chicago-fed-president-freeze-rates-until-2016\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/news.medill.northwestern.edu\/chicago\/chicago-fed-president-freeze-rates-until-2016\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/news.medill.northwestern.edu\/chicago\/chicago-fed-president-freeze-rates-until-2016\/#primaryimage\",\"url\":\"https:\/\/news.medill.northwestern.edu\/chicago\/wp-content\/uploads\/sites\/3\/2015\/03\/feature-evans.jpg\",\"contentUrl\":\"https:\/\/news.medill.northwestern.edu\/chicago\/wp-content\/uploads\/sites\/3\/2015\/03\/feature-evans.jpg\",\"width\":1100,\"height\":825,\"caption\":\"Chicago Fed's Charles Evans talked about inflation and patience in normalizing monetary policy in Lake Forest, Ill. 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