Chicago Fed Evans – Fed Still Missing Employment and Inflation Targets

Evans said that the Fed has made considerable progress toward its goals of inflation and employment since 2011, but there is still a ways to go to reach the bull’s eye.

Despite reaching a high of 10 percent unemployment, Evans said that 6.7 percent is still well above the 5-1/4 percent rate he thinks is the longer-time normal. To point out the reality, the 6.7 percent unemployment is higher than the 6.3 percent peak unemployment rate in the previous recession. He also admits, unlike the politicians measuring the success, that some of the decline in the unemployment rate over the past four years reflects people dropping out of the labor force instead of finding jobs. Evans also said that the labor force participation rate has recently declined more than can be accounted for by mere demographic trends and other such structural factors alone.

One comment really stands out here. Evans said,

“In addition, the end of extended unemployment insurance benefits and other factors likely have decreased the natural rate of unemployment that is our target. So, the decline in the unemployment rate likely overstates to some degree the reduction of slack in the labor market over the past year.”

Evans remains in the camp that the Fed is still missing its 2% inflation target as well, he said,

“No one can doubt that we are undershooting our 2 percent target. Total PCE prices rose just 0.9 percent over the past 12 months; that is a substantial and serious miss… this undershooting has persisted for several years. Compounding these difficulties, below-target inflation is a worldwide phenomenon and it is difficult to be confident that all policymakers around the world have fully taken its challenge onboard. Persistent below-target inflation is very costly, especially when it is accompanied by debt overhang, substantial resource slack, and weak growth.”

ALSO READ: Is the 35% Corporate Tax Rate Hurting The U.S. Economy?

Another Fed speech from one Fed president is telling you that rates should not be raised very much in the near-term. Whether or not that is the case is another matter, but that is what Charles Evans believes as of now.