U.S. dollar strength putting downward pressure on inflation: Fed’s Evans

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(Reuters) – A stronger dollar and weak global inflation are putting downward pressure on the pace of price increases in the U.S. economy, posing a challenge for the Federal Reserve, a top Fed official said on Saturday.

“The dollar, it puts downward pressure on our inflation,” Chicago Federal Reserve Bank President Charles Evans told a conference on the sidelines of the International Monetary Fund and World Bank fall meetings in Washington.

The Fed is debating how long it will keep its benchmark interest rate near zero, and Evans is among the policymakers willing to hold rates low the longest, in part because he is troubled by persistently soft inflation.

The Fed targets a 2 percent inflation rate, but Evans said the trend appears to be around 1.5 percent at present.

The dollar’s strength, therefore, presents another “headwind” because it reduces net exports and also imports the low inflation rates of America’s trading partners, he said.

Evans repeated his view that the Fed should keep its benchmark interest rate near zero until the first quarter of 2016. Many of his policymaking peers favor hiking around the middle of next year.

He said he would be open to policymakers making a pledge to tolerate inflation even if it temporarily overshot the central bank’s official target, because he thinks inflation on average should be on target. That implies periods below the target should be balanced with periods above target.

“Inflation below 2.5 percent for some period of time is not inconsistent with our 2 percent inflation objective,” Evans told reporters. “And sort of allowing for a little bit more of that to show in our guidance – to demonstrate patience – I’d be amenable to that.”


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