By Michael S. Derby 

Chicago Fed leader Charles Evans said Thursday the U.S. central bank may need to let inflation overshoot its 2% target in the future as part of an effort to ensure price pressures aren't too weak and monetary policy doesn't get stuck at near zero rates.

Mr. Evans also said as part of a presentation in Mexico City that because the risks of falling to near zero rates are now higher, the Fed must be prepared to use stimulus tools like bond buying and guidance about the future of interest rates when needed.

Mr. Evans didn't comment on the current state of the economy or monetary policy in his formal presentation. The official doesn't have a vote on the rate setting Federal Open Market Committee this year. He spoke as financial markets, worried by the coronavirus, are moving to price in a series of rate cuts this year. So far, Fed officials haven't said they are ready to act.

Mr. Evans's presentation was largely a review of current thinking about how the Fed can achieve its 2% target, something it has failed to do with any consistency since adopting it in 2012. At the same time, changes in the financial system and economy have led to a lower level of short-term rates, which has further complicated the Fed's ability to help influence the economy and achieve its inflation target.

Mr. Evans noted that Fed's inflation shortfall is dramatic. He said that the trend of price increases is 5.3% below where it should be had that trend risen by 2% since 2007, when the financial crisis began. If the Fed wanted to get the price trend back to where it should be, average inflation would need to rise to 4.7% for two years. To get the price level back to trend in six years, it would require average inflation of 2.9%.

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

February 27, 2020 11:44 ET (16:44 GMT)