U.S. monetary policy to be accommodative for a long time: Fed official

WASHINGTON, Jan. 4 (Xinhua) -- The U.S. monetary policy will be accommodative for a long time as the economy slowly recovers from the COVID-19 pandemic, a senior U.S. Federal Reserve official said Monday.

"The bottom line is that it will take a long time for average inflation to reach 2 percent. To meet our objectives and manage risks, the Fed's policy stance will have to be accommodative for quite a while," Federal Reserve Bank of Chicago President Charles Evans said in a speech to the annual meeting of the Allied Social Science Associations.

"Economic agents should be prepared for a period of very low interest rates and an expansion of our balance sheet as we work to achieve both our dual mandate objectives," he said, adding the Fed will likely continue its current asset purchase program for a while as well.

Evans also said the Fed should aim to boost inflation to 2.5 percent if the central bank wants to get average inflation up to 2 percent.

"If we try to fine-tune a very modest inflation overshoot of only a tenth or two, we run a very large risk of failing to achieve our 2 percent averaging goal within any reasonable amount of time," he said.

Tim Duy, professor of the University of Oregon and a long-time Fed watcher, believed the Fed will likely keep its current monetary policy unchanged until the spring before deciding on next steps.

Barring a financial disruption, "the Fed is in a holding pattern, likely until the spring, as they watch how the pandemic plays out over the coming months," Duy wrote Monday in a blog post.

"If the economy looks to be gathering steam as I expect, Fed chatter about easing back on asset purchases will increase. Of course, if the pandemic holds firm the Fed will be in no rush to reduce accommodation in any way," Duy wrote.

The Fed last month decided to keep its benchmark interest rate unchanged at the record-low level of near zero while expecting rates to stay there at least through 2023.

The central bank also pledged to continue its asset purchase program at least at the current pace of 120 billion U.S. dollars per month until it sees "substantial further progress" in employment and inflation.