WASHINGTON: In the week since the Federal Reserve made a landmark shift in its approach to monetary policy, details are emerging on what it could look like in practice, with two Fed policymakers on Thursday saying they’d be comfortable with leaving interest rates near zero even if inflation rises to levels not seen on a sustained basis in some 30 years.
Remarks from a number of Fed policymakers in recent days suggest that a shift to a more accommodative stance in pursuit of higher inflation isn’t imminent and that most feel the next move to support the economy needs to come from Congress.
“Partisan politics threatens to endanger additional fiscal relief,” the president of the Chicago Fed, Charles Evans, told the Lakeshore Chamber of Commerce in Hammond, Indiana, in one of the sharpest rebukes yet from a Fed policymaker to lawmakers who have been at loggerheads for months over the size of a new relief package. “A lack of action or an inadequate one presents a very significant downside risk to the economy today,” Evans said.
But once the coronavirus is under better control and unemployment has come down somewhat, he said, the Fed may need to shift its accommodative policies into higher gear.
That push, he said on Thursday, could take the form of promising to keep interest rates pinned near zero until inflation reaches 2.5 per cent, well above current low levels and modestly above the US central bank’s inflation target of 2 per cent.
“I’d be comfortable with inflation going up to 2.5 per cent as long as we were trying to average off very low inflation rates,” Evans told reporters on a call.
The US central bank announced last week that it was revising its approach for setting monetary policy to focus more on addressing shortfalls in employment and less on inflation. — Reuterss
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