Fed's Evans says he doesn't fear 2.5% inflation, or even above

FILE PHOTO: Chicago Federal Reserve Bank President Charles Evans looks on during the Global Interdependence Center Members Delegation Event in Mexico City, Mexico, February 27, 2020. REUTERS/Edgard Garrido/File Photo

(Reuters) - The Federal Reserve will keep interest rates at zero until the economy reaches full employment, inflation is “sustainably” at 2% and the Fed is confident it will overshoot that goal, Chicago Federal Reserve President Charles Evans said Wednesday.

“I do not fear stronger accommodation in the pursuit of clearly overshooting 2%, even to the point of 2-1/2, or even a little bit more,” Evans said at a virtual event hosted by MNI, adding that Fed forecasts suggest no rate hikes through at least 2023. Once the Fed does start raising rates, policy will remain accommodative, helping to boost inflation further.

Inflation of 2.5% for some time “is in the cards,” if the Fed is doing its job right, he said, adding that while the Fed does not need to buy more bonds now, it will do so if easier policy becomes needed.

For now, he said, the key to faster recovery isn’t further bond buying from the Fed but rather controlling the pandemic better and delivering further fiscal support, particularly to people without jobs and to local governments cutting jobs because they’ve lost tax revenue due to the crisis and recession.

Without fiscal support, unemployment won’t fall as fast, he said.

But once the recovery is further underway, the Fed will “pivot” to policy easing to make sure inflation will rise to, and beyond, the 2% target, he said.

Reporting by Ann Saphir; Editing by Chizu Nomiyama and Andrea Ricci