U.S. economy on good path with rates on hold: Fed policy-makers

INDIANAPOLIS/NEW YORK The U.S. economy is in good shape after three interest-rate cuts this year, two U.S. central bankers said on Wednesday, underscoring the consensus at the Federal Reserve for keeping borrowing costs where they are for the time being.

“I think the economy is doing remarkably well,” Chicago Federal Reserve Bank president Charles Evans told the Economic Club of Indiana. And though he is “personally worried” that inflation continues to run below the Fed’s two per cent target, he now sees enough accommodation in place to boost it to 2.2 per cent by 2022.

A few hours earlier he had toured the Indianapolis Motor Speedway, home to the oldest car race in the world, where he had taken a spin around the now-snowy track in a Chevrolet Tahoe at a top speed of 35 miles an hour.

The record for an Indy 500 lap is just over 237 miles an hour. “You don’t hit the finish line at the Indy 500 by decelerating — you accelerate right through to make sure you get there,” Evans said at the event. Later he told reporters, “I do think it’s extremely important that we get inflation up to 2; I actually think it’s important that we overshoot at this point in the economic cycle.”

That view — to abide by a symmetric approach to the two per cent target and allow inflation to run hot on occasion without tapping the brakes — appears to be popular among policy-makers as they enter the final stage of a yearplus-long review of how they conduct policy.

Fed officials voted unanimously to leave interest rates unchanged at last week’s policy meeting, in a target range between 1.5 per cent and 1.75 per cent, and have signalled it would require a material change to the outlook to either raise or lower borrowing costs.

“We are looking for the economy to continue to grow, labour markets to continue to be strong,” Evans said, adding that he is comfortable with leaving rates where they are through next year, and then with one rate hike in each of 2021 and 2022.