Tags: Evans | Federal Reserve | rates | December

Evans Says December Fed Rate Decision Makes Him Nervous

Tuesday, 01 December 2015 04:00 PM

The Federal Reserve’s policy meeting this month, at which it’s widely expected to raise interest rates for the first time in nearly a decade, has become a source of apprehension for Chicago Fed President Charles Evans.

"I admit to some nervousness about our upcoming decision," Evans, a 2015 voter on the policy-setting Federal Open Market Committee, said Tuesday in a speech in East Lansing, Michigan.

Evans, among the most dovish of Fed policy makers, reiterated that he "would prefer to have more confidence than I do today that inflation is indeed beginning to head higher" before raising rates, adding that "regardless of the exact date for liftoff, I think it could well be appropriate for the funds rate to still be under 1 percent at the end of 2016."

Fed Chair Janet Yellen is expected to reinforce the possibility of a decision to increase the central bank’s benchmark federal funds rate at the FOMC’s Dec. 15-16 meeting when she gives her outlook for the economy on Wednesday in a speech in Washington. The next day she’s scheduled to testify before Congress’s Joint Economic Committee, where she’ll deliver a statement and answer questions from lawmakers.

Effective Communication

Evans said that it’s vital the Fed “strongly and effectively communicates its plan for a gradual path for future rate increases” following liftoff, echoing other officials who’ve stressed that policy will continue to support U.S. growth even after the central bank lifts rates that have been held near zero since December 2008.

“It has been so long since we have raised rates that we may have forgotten what this actually means,” he warned, cautioning that higher rates would push up the cost of borrowing for auto loans -- a big deal in a state that is home to the nation’s largest car manufacturers and could potentially curb customer demand.

"With sales above trend and higher financing costs coming, we should expect sales to move down some from their current high pace," he said in the speech. "But against the backdrop of a healthy job market and steady economic growth, the declines shouldn’t be too large."

Strong Fundamentals

He later told reporters that recent data signaled U.S. fundamentals were still strong and the economy could handle higher rates, provided the pace of increase was slow.

“I think the economy is strong enough so that very gradual increases could still be quite consistent with continued strong economic growth and rising inflation,” he said.

In any case, the Fed should spell out how it would adjust policy in response to incoming data. “I would like language that made it clear about the expected pace of our increases, language that would indicate the role of monitoring for economic conditions, changes in our outlook," Evans said.


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The Federal Reserve's policy meeting this month, at which it's widely expected to raise interest rates for the first time in nearly a decade, has become a source of apprehension for Chicago Fed President Charles Evans.
Evans, Federal Reserve, rates, December
Tuesday, 01 December 2015 04:00 PM
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