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MNI (Washington)
--Little Risk of Economy Overheating
By Jean Yung
     WASHINGTON (MNI) - Federal Reserve Bank of Chicago President Charles Evans
does not appear to see much risk of the U.S. economy overheating in spite of
stimulative budget and tax reform, soaring confidence and positive global growth
momentum. That view puts him in more dovish territory compared to most other Fed
policymakers who believe the economy faces a real risk of running too hot. 
     "I think we have the opportunity to more patiently read -- and react to --
the incoming data," he said in remarks prepared for the Chicago Rotary Club on
Tuesday. "That is, I think we can undertake more moderate monetary policy
adjustments today than often was the case in the past." 
     Despite a strong economy and a low unemployment rate, inflation remains
low, he noted. Statistical evidence indicates that the linkage between
unemployment and inflation is weaker today than in the past, he said. 
     Plus, after many years of below-target inflation, inflation expectations
today are "actually too low," he said. "Most recent analyses of inflation see
little risk today of the accelerating self-reinforcing inflation dynamics that
were evident back then," in the 1970s. 
     Against that backdrop, an upturn in inflation is welcome because it should
help solidify inflation expectations symmetrically around the Fed's 2%
objective, which has long term benefits, he said. 
     If wages and inflation started rising above the Fed's 2% target, then the
sustainable unemployment rate is very likely higher than the Fed's current
estimate of 4.5%, and policy should react in a gradual, patient manner.
     On the other hand, if wages and prices don't start rising faster, then
either the natural rate of unemployment is lower and "policy does not need to
tighten much," or the economy is facing non-monetary issues such as structural
labor market inefficiencies that also would not elicit an interest rate
response, he said.  
--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com
[TOPICS: MMUFE$,M$U$$$]
MNI Washington Bureau | +1 202-371-2121 | jean.yung@marketnews.com
MNI Washington Bureau | +1 202-371-2121 | jean.yung@marketnews.com

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