MNI POLICY: Evans Sees Fed QE For Quite a While as Prices Lag

The Federal Reserve will keep buying debt and hold interest rates close to zero for a long time as inflation averages less than 2%, even if vaccines bring the pandemic under control this year, Chicago President Charles Evans said Monday.

"To meet our objectives and manage risks, the Fed's policy stance will have to be accommodative for quite a while. Economic agents should be prepared for a period of very low interest rates and an expansion of our balance sheet as we work to achieve both our dual mandate objectives," Evans said in remarks prepared for the Allied Social Science Associations annual meeting.

"The current upsurge in Covid cases is a serious problem. But progress on the vaccine front has been very positive, and it looks like the health crisis will be brought under control as we move through the year," said Evans, who joins the FOMC's voting group this year.

The Fed is holding its key rate in a 0%-0.25% range and buying at least USD120 billion a month in Treasuries and agency mortgage debt. Last year policymakers committed to bringing inflation to an average of 2% and eliminating shortfalls from maximum employment. The policies and the new inflation goal aim at overcoming the downward inflation bias presented by the low-for-long interest rate era.

"The new framework recognizes that we should not rush to raise rates and risk ending a vibrant, more inclusive job market unless inflation threatens to become uncomfortably high," Evans said.

He also affirmed comfort with core PCE inflation going to 2.5%, a needed overshoot that would restore average inflation about a year earlier than moving to just 2.25%. The smaller overshoot means inflation wouldn't return to the targeted average until late 2025 or early 2026, he said.