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By Howard Schneider
CHICAGO (Reuters) – The Fed is expected to cut interest rates by half a percentage point before the end of the year to sustain ever-low inflation and convince the public that policymakers policies really hold the 2% target, said Chicago Federal Reserve Chairman Charles Evans, Friday.
"Inflation expectations seem to me anchored a little bit below a level consistent with our two percent target, and it's stubborn like that," said Evans, currently a voting member of the fund-fixing committee. Fed rate. "This tells me that our current policy is a bit restrictive … I need two rate cuts … to improve the inflation outlook."
The Fed will meet later this month and should largely make a reduction of at least a quarter point.
Evans' comments expand on what has become a broad set of reasons why the Fed wants to cut rates, each providing a different set of decision makers with the need to cut borrowing costs even with a rate of almost record unemployment and economic growth a healthy pace.
In his congressional testimony this week, Fed President Jerome Powell focused on risk management and US support for slowing global growth and the shock on confidence. companies in May, as a result of soaring global trade tensions.
Others have pleaded for a reduction in interest rates for workers, which the Fed should push to the extreme. There has also been more abstract justification for a perceived drop in the "neutral" interest rate, which implicitly means that the Fed's current policy rate is more restrictive than previously expected.
While this merging of reasons has fostered the emergence of a consensus, Evans believes that the Fed's need to "ratify" its commitment to the inflation target alone would warrant a change in sentiment. policy.
While it is unlikely that lower interest rates alone will slow the pace of price increases, lowering rates at this stage would help raise expectations and show that the Fed is meeting its target of inflation seriously.
In his opinion, a reduction of half a percentage point would help bring inflation to 2.2% by 2021.
"The timing is not critical – talking about it is important," Evans said. "Go out there and try to explain to everyone that symmetric means that exceeding 2% is consistent with the way we do things."
(Report by Howard Schneider, edited by Chizu Nomiyama)
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