Tags: fed | evans | rate hike | zero rates

Fed Should Hike Slowly to Avoid Return to Zero Rates, Evans Says

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Friday, 03 Feb 2017 10:50 AM

Federal Reserve policy makers should be slow to raise interest rates to protect against downside risks to the U.S. economy that might force them to reverse course, said Chicago Fed President Charles Evans.

“I believe that appropriate policy calls for a slow pace of normalization in order to give the real economy an adequate growth buffer to withstand downside shocks that might otherwise drive us back down” to a zero interest rate, Evans said Friday in remarks prepared for a speech in Olympia Fields, Illinois.

Evans, who holds a vote this year on the central bank’s rate-setting Federal Open Market Committee, is the first official to speak since the FOMC announced Wednesday that it would leave the target range for its benchmark rate unchanged at 0.5 percent to 0.75 percent. It meets next March 14-15.

When Evans and his colleagues last published economic projections in December, the median estimate of the 17 committee participants was for three quarter-point rate increases in 2017, though many of them have cautioned that it will depend in part on fiscal policy.

The Chicago Fed chief is viewed as one of the central bank’s more dovish policy makers for arguing in favor of keeping rates low in order to ensure inflation rises back to the Fed’s 2 percent goal. He called expectations for fiscal stimulus “the main reason” why he marked up his forecasts for economic growth by a quarter-percentage point in both 2017 and 2018.

“My staff and I only made a modest change,” he said. “It is early in the legislative process, and we need more details.”

Business and consumer sentiment has improved since Donald Trump’s November election as U.S. president on hopes that his campaign promises for tax cuts, spending increases and government deregulation will deliver a growth-lifting boost.

Evans cautioned that despite incoming fiscal stimulus, interest rates would probably remain uncomfortably low for officials, who would prefer to have more capacity to cut them should the economy head into a downturn, without returning them to the post-crisis threshold near zero where the Fed held rates from 2008 until 2015.

“Risk-management policies would favor skewing policy today to lower the chances of facing more difficult zero-lower-bound outcomes in the future,” he said. “I think this strategy is important now. And it will likely continue to be important.”

 

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Economy
Federal Reserve policy makers should be slow to raise interest rates to protect against downside risks to the U.S. economy that might force them to reverse course, said Chicago Fed President Charles Evans."I believe that appropriate policy calls for a slow pace of...
fed, evans, rate hike, zero rates
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2017-50-03
Friday, 03 Feb 2017 10:50 AM
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