Fed's Evans Wants to Hold Off on Rate Rises Until Midyear

By Shibani Mahtani and Michael S. DerbyFeaturesDow Jones Newswires

Federal Reserve Bank of Chicago President Charles Evans said Wednesday he would prefer the central bank to hold off on its next rate rise until the summer while taking stock of what happens with inflation.

"I don't really see inflation taking off, and so I don't think the cost of waiting" on rate rises is very big right now, Mr. Evans told reporters after a speech in Lake Forest, Ill.

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"Midyear is about the right time" to think again about boosting the cost of short-term borrowing, Mr. Evans said. "If in fact things are worked out" and inflation is clearly rising, "we could resume a nice gradual pace at that point and still get the funds rate up to its more neutral level before too long."

Mr. Evans spoke in the wake of the December interest-rate setting Federal Open Market Committee meeting. Then, he joined with Neel Kashkari, the leader of the Minneapolis Fed, and opposed the Fed's third rate rise of the year. Both men argued against the action due to the shortfall of inflation relative to the Fed's 2% price-rise target.

Mr. Evans won't be a voting member of the FOMC this year. He has long been cautious of the need to raise rates given that the Fed has failed to achieve its 2% inflation target for years. Right now, the Fed is considering around three increases this year, but officials have offered no guidance about when the next move will happen. Handicapping the outlook is further challenged by significant leadership change, including an FOMC voting roster that brings in some new faces without much of a monetary-policy record.

Mr. Evans cautioned that his desire to hold off on rate rises wasn't a negative vote on the economy's outlook.

"I still think fundamentals are good and inflation is going to pick up," with price pressures rising to a 2% annual increase by late 2019 or early 2020, he said. Holding off on rate rises, Mr. Evans said, could help reinforce to the public the Fed's commitment it will do what it takes to achieve the targeted level of inflation. He added that it is OK for inflation to go over 2% for a time as well.

Mr. Evans said he is monitoring bond-market developments that suggest traders and investors may be starting to price in an economic downturn. But he added some of the low level of long-term borrowing costs at play here likely reflect the markets taking on board the fact that interest rates are likely to be lower in the future than they were historically.

Write to Shibani Mahtani at shibani.mahtani@wsj.com and Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

January 10, 2018 11:53 ET (16:53 GMT)