CHICAGO (Reuters) - The Federal Reserve may need to keep interest rates lower for longer to convince investors and the public that the central bank is serious about reaching its 2-percent inflation target, Chicago Federal Reserve Bank President Charles Evans suggested on Monday.
With inflation running too low both in the United States and globally, the Fed needs to show its commitment to achieving its inflation goal "sustainably, symmetrically, and sooner rather than later," Evans said in slides prepared for a speech in Chicago.
Doing so, he said, might require "undershooting the unemployment rate (and) overshooting the inflation target." Inflation has been running below 2 percent since 2012 and unemployment is currently at 5 percent, around where many economists believe is consistent with full employment.
Evans, who rotates into a voting spot on the Fed's policy panel next year, has been among the Fed's loudest voices for a patient and gradual approach to rate increases.
He did not refer to any personally preferred pace of rate hikes in his prepared slides, and instead said he would like to see the pace of rate hikes tied to progress on inflation.
Although the near-term outlook for economic growth is "relatively good," he said, slower labor force growth and other factors are capping the potential for faster expansion in the future, forcing the Fed to keep rates low to nurture what growth there is.
So while short-term rates are only just above zero, monetary policy is not as accommodative as it might appear, and the Fed has less "headroom" to raise rates, he said.
The Fed last raised rates last December. Further rate increases, Evans suggested in his slides, should be tied to higher inflation readings, high readings on inflation expectations, and a decline in the unemployment rate.
Monday is the last day before a weeklong communications blackout that Fed officials observe before each regular policy meeting. The Fed next meets Nov. 1-2.
Traders and economists expect it to leave rates unchanged then, and to raise rates at the Fed's December meeting.
(Reporting by Ann Saphir; Editing by Chizu Nomiyama)