December 15, 2017 / 4:24 PM / a year ago

Fed's Evans says voted against rate hike over inflation concerns

Federal Reserve Bank of Chicago President Charles Evans participates in a moderated discussion in Zurich, Switzerland October 11, 2017. REUTERS/Arnd Wiegmann

WASHINGTON (Reuters) - Chicago Fed President Charles Evans said on Friday that he had voted against the U.S. Federal Reserve’s decision to raise interest rates earlier this week due to worries over tepid inflation.

“I am concerned that persistent factors are holding down inflation, rather than idiosyncratic transitory ones. Namely, the public’s inflation expectations appear to me to have drifted down below the (committee’s) 2 percent inflation target,” Evans said in a statement explaining his dissent.

The U.S. central bank raised interest rates on Wednesday by a quarter of a percentage point in a 7-2 decision but left its interest rate outlook for the coming years unchanged.

Minneapolis Fed’s Neel Kashkari also dissented.

The Fed projected that inflation would remain below its target rate for another year. The Fed’s preferred measure of inflation has retreated for much of the past year and currently stands at 1.4 percent.

Policymakers have been vexed by the shortfall, but given the strength of U.S. economic growth and low unemployment, decided to proceed with gradual increases in its benchmark lending rate.

Evans, however, said that leaving interest rates unchanged “would have better supported a general pickup in inflation expectations and increased the likelihood that inflation will rise to 2 percent.”

Given that policymakers have raised interest rates twice in 2017 already, he said a pause would have given policymakers time to test their theory that the slowdown in inflation is transitory.

“Waiting a while longer before raising rates would have given us a chance to see whether or not that was true,” he said.

Reporting by Lindsay Dunsmuir and Jason Lange; Editing by Bernadette Baum

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