Fed Presidents Call for Patience on Interest Rates
Three Federal Reserve presidents are calling for patience as the central bank weighs when to raise interest rates above zero, arguing moving prematurely poses a greater risk to the economy than waiting too long.
“We should be exceptionally patient in adjusting the stance of U.S. monetary policy —- even to the point of allowing a modest overshooting of our inflation target to appropriately balance the risks to our policy objectives,” Charles Evans, president of the Chicago Fed, said yesterday in Washington.
Evans joined the New York Fed’s William C. Dudley and Narayana Kocherlakota of Minneapolis in warning the Fed shouldn’t make a change before being sure the economy can withstand higher borrowing costs.
The fresh case for continued monetary accommodation pushed back against arguments put forward recently by other Fed officials, including St. Louis President James Bullard and Dallas chief Richard Fisher, to consider a rate increase early in 2015.
“Inflation is low — they don’t want to be stuck in a low inflation environment,” said Michael Hanson, U.S. senior economist at Bank of America Merrill Lynch in New York. “They very much want to avoid a situation where they reverse course,” and are forced to lower rates again after raising them, he said. “There are big credibility costs from that.”
The Fed presidents who spoke this week “are making very strong intellectual arguments in favor of patience,” said Laura Rosner, U.S. economist at BNP Paribas in New York.
“The question is, where does Janet Yellen stand on this?” Rosner added, referring to the Fed chair. “Is this just Evans and Kocherlakota campaigning or does this reflect the driving block of policy?”
Source: Bloomberg-Fed Presidents Call for Patience on Interest Rates
