Gorsby believes that the inflation rate in the USA will reach 2%, and points out that there have been warning signs in the job market...
Chicago Fed President Charles Evans said that if the US inflation rate continues to fall to its target of 2%, policymakers should cut interest rates.
On Tuesday, the Chicago Fed president said in an interview that “we are on the road to 2% inflation, and if you keep rates steady when inflation falls, you are actually tightening, so you need to make a decision, rather than continuing to do nothing.
Before making the above comments, Evans disclosed that data released last week showed that the PCE inflation index favored by the Fed fell by only 0.1% from the previous month, the lowest level in six months.
Since July of last year, Fed officials have kept interest rates at historic highs for more than 20 years, saying they need more evidence that inflation is moving toward the target of 2% before lowering borrowing costs. Evans said:
“We reached the current interest rate level when the inflation rate exceeded 4%, but now the inflation rate has dropped to nearly 2.5%, so if you still insist on this interest rate level when the inflation rate falls, you are actually tightening.”
It is worth noting that Evans does not have voting rights this year, but he will briefly exercise the Cleveland Fed president's voting rights at the July meeting because Cleveland Fed President Mester Retired.
He added that inflation seems to be returning to the target level. “We encountered setbacks in January, but now we have a series of improved inflation data. There have been some warning signs in the job market. If employment begins to collapse, or if the economy begins to weaken, you must make progress in prices to balance this. The unemployment rate is still low but has been rising.
Later on Tuesday, Fed Chairman Powell will deliver a speech at a group discussion with ECB President Lagarde and Brazilian Central Bank President Campos Neto. Powell said at a news conference after the June 12 FOMC meeting that “the inflation data in the second half of last year was very good, but there was a pause in the first quarter. Our conclusion is that we may need more time to gain the confidence needed to start easing policies.”
Editor/Emily