Evans Cites Concern About Fed's Inflation Miss for His Dissent

(Bloomberg) -- Federal Reserve Bank of Chicago President Charles Evans said he dissented from this week's decision to raise interest rates because he's concerned about low inflation expectations, as price pressures continue to undershoot the U.S. central bank's 2 percent target.

“Leaving the target range at 1 to 1.25 percent at the current time would have better supported a general pickup in inflation expectations and increased the likelihood that inflation will rise to 2 percent,” he said in a statement Friday. “Such a pause in the policy normalization process also would have better allowed the Committee time to assess the progress of incoming inflation data.”

The rate-setting Federal Open Market Committee voted to raise the target range of its benchmark federal funds rate to 1.25 percent to 1.5 percent at the conclusion of its Dec. 12-13. Evans and Minneapolis Fed President Neel Kashkari voted against the increase.

Evans, who has been a consistent voice of caution against raising rates before inflation picks up steam, reiterated his anxiety over low inflation expectations that could hinder progress back to the Fed's goal.

“I am concerned that persistent factors are holding down inflation, rather than idiosyncratic transitory ones. Namely, the public's inflation expectations appear to me to have drifted down below the FOMC's 2 percent symmetric inflation target,” he said. “Too many observers have the impression that our 2 percent objective is a ceiling that we do not wish inflation to breach, as opposed to the symmetric objective that it really is.”

U.S. inflation has been below the central bank's 2 percent target throughout much of the expansion, and a closely watched measure that strips out volatile food and energy prices has declined this year after rising close to the goal in 2016.

In a press conference after the rate announcement, Fed Chair Janet Yellen said “our judgment at this point is that transitory factors that are unrelated to the broader macroeconomic outlook are holding inflation down,” adding “it's not my judgment that inflation expectations have slipped, but that also remains a possibility that needs to be monitored.”

To contact the reporter on this story: Matthew Boesler in New York at mboesler1@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Alister Bull