Chicago Fed President Charles Evans said he dissented on the U.S. central bank's interest rate hike this week because inflation was still too low and he is not sure that will be temporary.
Evans, who had voted for the Federal Reserve's past two rate hikes, was one of two dissenters in the Dec. 13 Federal Open Market Committee decision to raise the federal funds rate to a target range of 1.25% to 1.5%. Minneapolis Fed President Neel Kashkari also voted against the increase. The two will not be voting members of the FOMC next year.
Evans had signaled ahead of the meeting he was concerned that inflation remains below the Fed's 2% target. Fed Chair Janet Yellen said after the announcement that was likely due to "transitory" factors and that inflation should reach that target in the next couple of years.
But Evans said in a Dec. 15 statement explaining his vote that he is "concerned that persistent factors are holding down inflation," instead of temporary ones. He also raised concerns that "too many observers have the impression" that the 2% goal is a ceiling that the Fed does not want to overshoot.
The decision, he said, was a "close one." But he said keeping the federal funds rate unchanged would have helped inflation expectations pick up and made it more likely that inflation would hit the 2% goal "along a path that is consistent with a symmetric inflation objective." It also would've let policymakers assess inflation data in the coming weeks, he said.
"Many analysts think the drop in core inflation this past spring was probably transitory," he said. "Waiting a while longer before raising rates would have given us a chance to see whether or not that was true. Hopefully, it will turn out to be the case that the inflation decline was largely transitory and that a gradual pace of rate increases can eventually take place in a context that delivers greater confidence that inflation will reach 2 percent over the medium term."
