Federal Reserve officials will probably have to wait for years to see the inflation rate rise above the U.S. central bank’s 2% target, Chicago Fed President Charles Evans said.
“I expect inflation to slowly improve, reaching 2% on a persistent basis in 2023 and then moderately overshooting 2% over the following few years,” Evans said Monday in remarks prepared for a speech at a virtual conference.
“We likely have a lot of work ahead of us. And it’s crucial that we acknowledge the magnitude of the job up front to help lessen the temptation to back off the overshoot too early in the process,” he said.
Fed officials announced in August that they would shift to a policy of allowing inflation to overshoot the 2% target following periods of under-running it such that inflation averages out to 2% over time. In September, they announced they would leave the central bank’s benchmark interest rate near zero at least until inflation had reached 2% and was on track to overshoot.
The blow to the economy from the coronavirus pandemic has depressed the outlook for inflation that, according to the Fed’s preferred measure, was 1.4% in the year through August. Evans said he also doesn’t see the unemployment rate, which fell to 7.9% last month, returning to 4% until 2023.
“My forecast assumes that additional federal fiscal policy actions are coming,” Evans said. “Without adequate fiscal support before too long, I am concerned that recessionary dynamics will gain more traction and lead to a slower trajectory back to maximum employment.”