Unemployment fell to 4.3 percent in May, below what many Fed officials say is sustainable in the long run. But inflation, which by the Fed’s preferred gauge fell to 1.5 percent in April, has run below the Fed’s 2 percent target for years.
Despite his warning on too-low inflation, Evans last week cast his vote with the 8-1 majority at the Fed who supported lifting the target range for short-term interest rates by a quarter of a percentage point. Interest rate hikes are typically aimed at slowing growth and inflation.
Fed officials also reaffirmed their expectation of one more rate hike in 2017, bringing the total for the year to three, and said they expect to begin allowing the $4.5 trillion balance sheet to shrink by an initial $10 billion a month. On the margin, a small
er Fed balance sheet delivers less downward pressure on longer-run borrowing costs.
“It remains to be seen whether there will be two rate hikes this year, or three, or four or exactly when we start paring back reinvestments of maturing assets,” Evans said. “Ultimately, our exact actions will appropriately be driven by how events transpire to influence the outlook for achieving our policy goals.”
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