Chicago Fed President Charles Evans said the economy has made a lot of progress, but suggested he was not yet ready to support announcing a tapering of bond purchases in September, as many of his colleagues have argued for in recent days.
“I’d like to see a few more employment reports,” Evans said during a discussion with reporters on Tuesday. There is only one more jobs report before the Fed interest-rate committee meets on Sept. 21-22.
After September, the Fed policymakers will next meet on Nov. 2-3.
On Monday, Boston Fed President Eric Rosengren became the latest official to back a September announcement of a plan to reduce its $120 billion in monthly purchases of Treasury- and mortgage-backed securities later in the fall.
Evans said he was confident that the announcement could come later this year.
“I don’t think one meeting on either side is going to have an important effect on the accommodative stance of monetary policy,” Evans said.
Several other Fed officials — but still a minority of them — agree with Rosengren. The central bank is purchasing $120 billion per month of bonds to keep interest rates low and support the economy.
The Fed has said it wanted to see “substantial” progress before starting to taper the asset purchases.
Evans stopped a little short, saying the economy had only made “good” progress to date.
Even though inflation has soared this year, Evans said he was more worried that the inflation rate will fall back sharply over the next two years and again run below the Fed’s 2% inflation target.
Evans forecast the core personal consumption expenditure index would run at a 3% rate this year but then settle down to a 2.1% rate in 2022 and 2023.
Evans has been an ardent dove on the central bank.
“I’m probably more nervous than almost all my colleagues” that inflation will get stuck below the 2% target rate again, Evans said. The Fed has never met its inflation target on a sustained basis ever since it announced the target in 2012.
That’s why the Fed adopted late last year a “flexible average inflation target.” It is designed to allow inflation to run above 2% for a time so that inflation averaged 2% over the long run.
The core rate of the PCE hit 3.5% in June, the highest annual reading in 30 years, and surprising Fed officials. Some officials have argued that this surge in inflation means the central bank will meet the average 2% inflation rate target, allowing policy to be less accommodative.
Evans said he wanted the Fed to be more cautious.
“I am going to be very regretful if we sort of claim victory on averaging 2% inflation and then we find ourselves in 2023 with about a 1.8% inflation rate going forward,” Evans said.
He said he viewed the price spikes this year as temporary, but said the inflation picture was the largest uncertainty.
The Chicago Fed president was upbeat about the growth outlook and the labor market.
“The economy is doing well, unemployment is projected to continue going down. I think we have supportive fiscal policy,” he said.