Fed's Evans says inflation 'under control'

Federal Reserve Bank of Chicago President Charles Evans said inflation and expectations of future prices are currently "under control" unlike during a period of weak economic growth three decades ago.

"There are some similarities between today and the environment of the mid-1970s," Evans said today in a speech on financial education in Chicago. "While we are tentatively emerging from a severe recession, unemployment remains high. Thankfully, inflation and inflation expectations are under control."

Evans' comments echoed those of Fed Vice Chairman Donald Kohn, who said yesterday a sharp increase in short-term interest rates is unlikely because of low inflation and a feeble world economy. Policy makers said they expect inflation to "remain subdued for some time" because of slack in the economy, according to their statement in August.

The consumer price index fell 2.1 percent in the year ended in July, the biggest 12-month decrease since 1950.

Evans said some current attitudes toward the Fed are similar to those during the mid-1970s. He cited a "lack of understanding of the role of the Federal Reserve, threats to its independence and various proposals that would change its functions." His remarks at the bank's conference were posted on its Web site.

"In some respects, confusion over the Fed's role is quite understandable, given the unconventional steps we have taken over the past two years," he said.

The central bank lowered its main rate almost to zero in December and has committed to purchasing as much as $1.75 trillion of Treasuries and housing debt to reduce borrowing costs.