The Federal Reserve could well let inflation rise to 2.4 percent or so, above its 2-percent target, if the economy requires it, a top U.S. central banker said.
Chicago Fed President Charles Evans, in an interview with Bloomberg TV on Thursday, said it would not be a "catastrophe" to overshoot inflation by some amount.
"Even a 2.4 percent inflation rate, if it's reasonably well controlled and the rest of the economy is doing OK and policy is being adjusted to keep that under the 2.4 percent range, I think that could work out," Evans said.
The policymaker added he expects 1.5 to 1.75 percent inflation over the next couple of years, and said the U.S. labor market is doing "a lot better" recently.
Given better economic data, the Fed is expected to wind down its bond-buying stimulus in October and to raise its key federal funds rate from near zero in about a year. Evans, a dovish Fed policymaker, said, for him, it would however be appropriate to wait until early 2016 to tighten.
Turning to the mechanics of how to raise rates after years of aggressive easing without destabilizing markets, Evans said the Fed is mulling ways to improve the accuracy of its fed funds rate.
Minutes from the Fed's June policy-setting meeting, released this week, revealed officials considered ways to recalculate the rate "in order to obtain a more robust measure of overnight bank funding rates and to apply lessons from international efforts to develop improved standards for benchmark interest rates."
In the TV interview, Evans said: "The number of participants that form the basis for how the effective fed funds rate is calculated is much smaller than everybody who trades in the fed funds market.
"There are other sources of data that we are going to have access to which could give rise to a firmer estimate of that."
(Reporting by Jonathan Spicer; Editing by James Dalgleish and Chizu Nomiyama)