By Michael S. Derby 

Federal Reserve Bank of Chicago leader Charles Evans pushed back against any idea that he wants to raise rates before overshooting the U.S. central bank's 2% inflation goal.

Mr. Evans on Wednesday weighed in on comments he made a day earlier that some saw as suggesting he had a more hawkish view on rate policy than his colleagues. He said Tuesday that the Fed might be able to raise rates before achieving 2% inflation on average.

"I think this gets at one of the communications challenges that we're facing," Mr. Evans said Wednesday in a virtual appearance. "I really thought that I was pretty much reading out what our September [Federal Open Market Committee] statement was saying." He acknowledged that among Fed officials he's on the dovish side, or more inclined to tolerate higher inflation to help bring about better job market performance.

The Fed last week gave new interest-rate guidance. After their rate-setting FOMC meeting, officials said they would keep rates at near-zero levels until maximum employment is achieved and inflation moves up to 2% on its way to overshooting that level.

The new guidance built on the Fed's announcement at the end of August that it would seek to allow inflation to go over its 2% goal to make up for periods when it has fallen short. The Fed's new system suggests it could be years before short-term rates move off rock-bottom levels: The Fed's forecasts from last week indicate no move through at least 2023.

"We've indicated that we're going to keep the federal-funds rate, you know, at our zero to a quarter percent [range] until inflation gets to 2%, we get to employment conditions that are like maximum employment, and inflation is on track to exceed 2%," Mr. Evans said Wednesday. "We just have to be pretty clear that two and a half percent inflation for some period of time is likely in the cards if we're doing our jobs right."

He also said that once the Fed gets past 2% inflation, any Fed rate increases then may not create notable headwinds to growth. "We can begin to raise the funds rate and it will still be accommodative. That's the language in the statement that says the funds rate will be accommodative, as we, you know, continue to seek maximum employment and inflation at 2%."

Mr. Evans told reporters after his remarks that while he sees inflation hitting 2% within the Fed's current forecast horizon going out to 2023, he doesn't see an increase in rates happening during that period.

Mr. Evans said in his appearance Wednesday he believes Fed rate policy, coupled with asset buying, is set appropriately for the challenges facing the nation. The official also said other government actions are even more powerful given the nature of the coronavirus pandemic: "Fiscal policy support and improved public safety are really the key elements" to get the economy back on track.

Mr. Evans said he believes today's 8.4% unemployment rate could fall to 7% by the end of this year, and to 5.5% by the end of next year. But he added that rapid recovery does depend on some amount of fiscal support.

"I have been surprised the U.S. economy has been as resilient since June as it has," Mr. Evans said, given the renewed virus outbreaks. "One way or another, for good or bad, we seem to be powering through 200,000 deaths of American people, and we are trying to keep people safe as we go through and produce and all of this. I might have thought there'd be a little more concern in terms of consumer confidence. But the economy has done better than that."

Mr. Evans said he doesn't see much to be gained by increasing the Fed's pace of asset buying but that it could change in the future. The official also said massive U.S. deficits right now are necessary to provide aid in the coronavirus crisis and that he sees no issues financing that red ink.

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

September 23, 2020 16:25 ET (20:25 GMT)

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