May 9 U.S. inflation is undershooting the
Federal Reserve's ideal, but it is not so low that the central
bank should move to add still more stimulus to the economy, a
top Fed official said on Thursday.
"I think it's way too early to think like that," Chicago Fed
President Charles Evans said in an interview on Bloomberg TV,
asked if low inflation requires a policy response from the Fed.
Evans said he expects inflation to rise back to about 1.5
percent, still lower than the Fed's 2-percent target.
Given such low inflation and unemployment that is still too
high, "I think we should try as hard as we can" to turn things
around, he said, and only then should the Fed consider easing
off its stimulus.
The Fed is currently buying $85 billion in Treasuries and
mortgage-backed securities each month to spur growth and hiring.
Those asset purchases have given a boost to the labor
market, Evans said, pushing average monthly job gains to 200,000
over the past six months and helping push down unemployment to
its current level of 7.5 percent.
The number of Americans filing new claims for unemployment
benefits dropped to its lowest level in nearly 5-1/2 years last
week, a U.S. government report showed early Thursday. [ID:
"I'd like to have confidence we can sustain that improvement
in the labor market through this summer," Evans said.
A few policymakers have suggested the Fed may need to act to
defend the economy against overly low inflation. Others say the
Fed should stop its bond-buying, with Philadelphia Fed President
Charles Plosser saying it has not helped the labor market much.
"I'd like to stop but I would particularly like to see us
begin to slow the pace down, gradually ease our way out of this
if we possibly can," Plosser said on Bloomberg television
earlier on Thursday.
Evans' call for continued, but not increased, stimulus
appears to reflect the view at the core of the Fed's
policy-setting committee, which voted 11-1 on May 1 to continue
the bond-purchase program known as QE3 because it is the Fed's
third round of quantitative easing.
A voting member this year on the Fed's policy-setting panel
and a strong advocate of stimulus, Evans said that once the
labor market outlook shows substantial improvement, the Fed
could end bond purchases gradually or abruptly.
Even after QE3 is phased out, Fed policy would stay easy.
Evans was a chief architect of the Fed's policy, adopted last
December, to keep short-term interest rates low until
unemployment falls to at least 6.5 percent, as long as inflation
does not threaten to rise above 2.5 percent.