Tags: federal reserve | charles evans | interest rate | hike

Sagging Inflation Should Keep Fed on Hold: Evans

Friday, 09 January 2015 09:48 AM

The U.S. jobs market is making "good, good progress," but with wages down, inflation low and the outlook for inflation slipping, the U.S. central bank should defer raising rates until next year, a top Federal Reserve official said on Friday.

"If we are going to get inflation up to our 2-percent objective... we are going to have to see wages increase more," Chicago Federal Reserve Bank President Charles Evans told CNBC in an interview, after a government report showed hourly wages declined in December despite strong gains in jobs.

"That's why I'm in favor of being patient on raising interest rates."

Evans, who has a vote on the Fed's policy committee this year, said his view that the central bank should not raise rates until 2016 is rooted in an expectation of strong employment growth and economic activity.

The jobs report Friday showed the unemployment rate fell to a 6-1/2-year low of 5.6 percent, but average hourly wages fell 5 cents.

The decline in wages is indicative of low inflation, Evans said.

"I'd like to have more confidence that we're going to get inflation to 2 percent," he said. "To get there I think we need continued accommodation."

The Fed has kept short-term interest rates near zero since December 2008, and most Fed officials expect the economy to be strong enough this year to start raising rates, if ever so slightly. Traders share that viewpoint, betting on Friday that the Fed will start raising rates in September.

Not Evans, who said Friday he does not want to see the United States fall into a situation like Europe, where inflation is very low and dropping.

Underscoring those concerns, the U.S. bond market's measures on inflation expectations fell after the jobs report. The 10-year TIPS inflation breakeven rate, a gauge of investors' longer-term inflation outlook, was 0.95 basis point lower at 1.60 percent.

"I am definitely very concerned about the TIPS data; it's moved down a lot," Evans said.

"That's either an assessment by investors that they are expecting continued very low, below-our-objective inflation ...or the cost of low inflation is potentially much higher than they've ever experienced before."

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The U.S. jobs market is making "good, good progress," Chicago Federal Reserve Bank President Charles Evans said Friday, but added that with inflation still low the U.S. central bank should defer raising rates until next year.
federal reserve, charles evans, interest rate, hike
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2015-48-09
Friday, 09 January 2015 09:48 AM
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