Economist's Insights

Chicago Fed’s Evans Says Economy is Okay, but He’s Concerned About Inflation

Jun 20, 2017

Monday Remarks: Chicago Fed President Evans isn’t as convinced as NY Fed President Dudley that a tight labor market will soon boost wages and help lift inflation back to the Fed’s two-percent target. In comments early Monday evening, Evans cautioned that core inflation “has generally under-run 2 percent — and often by substantial amounts, …This is eight full years below target. This is a serious policy outcome miss.” While Evans clearly believes the inflation mandate remains unmet, he is more comfortable that the labor market has returned to full employment and the U.S. economy is “doing quite well”. It’s these latter two factors that support his belief that “the current environment supports very gradual rate hikes and slow preset reductions in our balance sheet.” Still, his harping on the Fed’s “need to demonstrate a strong commitment to hitting our symmetric inflation objective sooner rather than later,” the “need to pursue an outcome-based policy to actually help us achieve our inflation goal,” tilts Evans remarks to the dovish side of the policy preferences.

Tuesday Remarks: In an interview with CNBC on Tuesday morning, Chicago Fed’s Evans continued to discuss his concerns about recent inflation trends. Consistent with his Monday remarks, he believes the economy is doing well. Evans, seemingly less sanguine on the inflation outlook, noted “Up to this point, I think that we can still expect that inflation will go up to 2 percent, although I will say that the most recent inflation data make me a little nervous about that, so I think it’s much more challenging from here on out.” As to when he believes the Fed might hike again, Evans said, “we can go until December and make a judgment that maybe three [hikes] is the right number, maybe two is the right number.” On the balance sheet, he said the beginning of the unwind is “probably pretty close.”