Chairman Evans Sees Positive Signs For U.S. Inflation Improvement
Chicago Federal Reserve Bank Chairman and CEO Charles Evans says the latest numbers on U.S. inflation have been "positive," and sees little upward or downward movement in levels of inflation, but signs of increased inflation would be cause for serious concern. In his first policy speech of his tenure, Evans told an audience at the University Of Chicago Graduate School Of Business Monday that his outlook is for core PCE inflation to remain in the range of 1.5 percent to 2 percent in 2008-09, which he says is a "favorable development" relative to the outlook six months ago. Evans said that outside of the housing sector, the economy is performing "fairly well." He points out that over the previous year and a half, declines in residential investment reduced real GDP growth by about 3/4 percentage point, but the rest of the economy increased at a solid 3-1/4 percent rate. Evans said housing demand and prices could weaken a good deal more than expected, and a more pronounced downturn could weigh more heavily on consumer spending. In addition, further delinquencies and foreclosures could add to the problems with mortgage-backed securities. This, in turn, could generate further adverse effects on financial conditions that support economic activity. Together, such events would pose a more serious downside risk to growth. Evans said the Fed needs to take into account market uncertainties as it formulates monetary policy going forward, and that any increases in inflation or inflation expectations from their current levels would be cause for "serious concern."
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