MNI POLICY: Evans- 'Mid-2020s' Before The Fed's Goals Are Met

Chicago Federal Reserve President Charles Evans said Wednesday that policy makers should overlook any short-lived burst of inflation as the pandemic eases, and several years are likely needed before their goals are met and monetary settings could be tightened again.

"It will be critical for monetary policymakers to look through temporary price increases and not even think about thinking about adjusting policy until the economic criteria we have laid out have been realized. So I see us staying the course for a while," Evans said in the text of a speech.

"The inflation outlook--particularly in the near term--is complex. But I expect underlying inflation won't be back to our goal until the mid-2020s," he told Oakland University's business school in Rochester, Michigan.

Inflation will quicken in the near term because of a mechanical comparison to weakness during last year's Covid-19 shutdowns, before ending the year at between 1.5% and 1.75%, Evans said. Prices may also be volatile as demand pressures on different industries shift along with progress rolling out vaccines, he said.

LESS INFLATION CONFIDENCE

"The strong pickup in economic activity projected for this year should generate a temporary boost to inflation; but whether this becomes embedded into inflation expectations and produces a more sustained increase in underlying inflation is an open question," Evans said.

Some firms in the Chicago Fed district are boosting wages and hiring more staff than they would regularly need to cope with increased absenteeism, another upward inflation pressure that should fade away later, he said.

The U.S. economy will grow between 5% and 6% this year, and average between 2% and 3% in 2022 and 2023, Evans said. The forecast includes an assumption that "about half" of President Joe Biden's proposed USD1.9 trillion fiscal relief package becomes law. The jobless rate will return to the pre-pandemic level of 3.5% by end end of 2023, he predicted.

"I am reasonably confident that we will reach our maximum employment goal over the next three years," Evans said. "I am more concerned about the prospects for reaching our inflation mandate, however. Inflation is far too low today. And we have a long way to go to reach the magnitude of overshooting that I see as necessary to satisfy our average inflation objective."