CHICAGO–The president of one Federal Reserve Bank said he believes had the Fed’s current thinking on rates been in place just five years ago it’s not likely the central bank would have raised rates between 2015-18.
Federal Reserve Bank of Chicago President Charles Evans didn’t say the actions taken by the Fed were a mistake during that period, which saw the Fed increase rates from nearly 0% in December 2015 and eventually arriving at a target rate range of between 2.25% and 2.5%. But in remarks to an economists’ group, he said things could have gone a lot differently, according to the Wall Street Journal.
Had the Fed’s new framework been in place, “it’s highly likely that this strategy would have forestalled raising rates in 2015 and 2016,” Evans told the meeting. “Whether inflation would have persistently reached 2% and justified a rate increase sometime in 2017 under this counterfactual is open to debate.”
At the same time, had the Fed held off on rate hikes, the economy could have performed better, and bolstered the odds of hitting the thus-far elusive 2% inflation target, he said, according to the Journal.
“A looser policy would have made the real economy more resilient to the headwinds that hit in 2018 and 2019,” Evans was quoted as saying. “It is likely that under the alternative policy, those just-at-2-percent-inflation numbers in 2018 would have been turned into a meaningful overshoot, providing a buffer to keep inflation from falling as much below target as it did with the disinflationary shock in 2019,” he said.
In addition, during his remarks Evans also reiterated his view, one shared with many other central bankers, that additional fiscal support for the economy is urgently needed, The Journal noted.
Additional Actions Coming
“My forecast assumes that additional federal fiscal-policy actions are coming,” Evans said, according to the Journal. “Still-struggling households and businesses need more aid, and help for state and local governments is especially important,” he said, adding “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.”
Describing the economy as surprisingly resilient, Evans said it’s his view a full rebound from the current economic downturn is unlikely until late 2021, with the jobless rate falling from its current 7.9% to 4% by 2023, and inflation rising to 2% by that same year and going over the target afterward.