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Fed Officials Push Financial Stability to Center of Rate Debate 

September 1, 2016

Matthew Boesler, Bloomberg

With U.S. inflation low and seen staying that way, Federal Reserve officials who favor raising interest rates point to preserving financial stability as another reason to move. Chicago Fed President Charles Evans, a key advocate of delaying action, is making a new argument to push back against that notion.

His comments in Beijing earlier on Wednesday touch on key questions for the policy-setting Federal Open Market Committee when it meets next month: Do officials need to increase rates before inflation rises to their 2 percent target, in order to avoid the need for faster tightening later on and to keep financial risk at bay? Or should they let inflation reach their goal first to make sure it gets there and stays there?

Remarks by Fed Chair Janet Yellen in Jackson Hole, Wyoming, on Aug. 26 are “consistent with the former” view, said Michael Gapen, chief U.S. economist at Barclays in New York. “There is a group within the Board that is consistent with the latter, and I think Charlie is part of that group.”

The Fed’s preferred inflation gauge has been below the target for more than four years and Fed staff project it will still be slightly below 2 percent in 2018. Read more

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