LONDON (Reuters) - Keeping U.S. interest rates on hold then raising them faster only once inflation is on target could help avoid a damaging, persistent inflation undershoot, Chicago Federal Reserve President Charles Evans said on Friday.
Evans, speaking to reporters after an event in London, said Britain’s June 23 referendum on European Union membership was only one factor playing into the Fed’s June rate meeting, and needed to be viewed in the context of reduced market volatility from other sources since the start of the year.
Evans said the ‘risk management’ approach of keeping rates on hold until inflation was higher was not his “modal case” or central expectation, but he said policymakers “will greatly regret” if they do not get inflation back to 2 percent.
“Would we be well served by waiting until we got inflation to 2 percent and then tighten? There would be risks. There would be risks that inflation starts rising more quickly... As I weigh those risks I don’t see them that way,” he said.
“I do recognize that it’s far from our central view, it’s not even my modal viewpoint,” he added.
Reporting by David Milliken, editing by Andy Bruce