Federal Reserve policymakers should be "quite confident" that inflation is headed back to a healthy 2 percent before raising interest rates, the head of the Chicago Fed said on Wednesday, urging a delay in rate hikes until the first half of next year.
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"I see no compelling reason for us to be in a hurry to tighten financial conditions until then," Chicago Fed President Charles Evans said in remarks prepared for delivery to the Official Monetary and Financial Institutions Forum in London.
To Evans, the costs of raising rates too soon far outweigh those of raising them too late, especially given weak inflation and an unemployment rate that, at 5.5 percent, is still higher than the 5 percent level he sees as sustainable.
And while many of his colleagues are looking past the recent sharp rise in the value of the dollar, Evans worries that the strong dollar's "clear disinflationary pressure" could get embedded in expectations and make it even harder for the Fed to reach its 2 percent inflation target.
To feel comfortable about raising rates, he said, he would need to see a rise in core inflation above the current level of 1.3 percent, an increase in wage growth to a range of 3 to 4 percent annually, and a rise in inflation expectations.
Still, Evans has not used his vote on the Fed's policy-setting committee to dissent against colleagues who for the most part expect the Fed to start raising rates this year and to continue raising them about a quarter of a percentage point every other meeting.
Most market participants expect the Fed to move even more slowly, Evans said. His prepared remarks included a graph of market expectations that suggest traders agree with the rate hike views of the Fed's two most dovish policymakers, of which he is one.
"I think we should be cautious in raising interest rates," Evans said. (Reporting by Francesco Canepa and Ahmed Aboulenein; Writing by Ann Saphir; Editing by Leslie Adler)