The U.S. Federal Reserve will need to keep rates at rock bottom until late 2015 and then increase them only moderately over the next year because it would otherwise risk derailing a building economic recovery, a top Fed official said on Friday.
“I personally doubt that the funds rate is going to start to increase before the middle of 2015,” Chicago Federal Reserve Bank President Charles Evans told the Credit Suisse investment conference in Hong Kong.
“I think it ought to increase later than that.”
Raising rates earlier, whether to head off the risk of financial instability or unacceptably high inflation, could dangerously depress already low inflation and derail a recovery that is finally gaining steam, Evans said.
“If we go out and pound that message repeatedly, then it gets every economy a chance to get their own house in order and deal with their own financial situation and we will all grow together,” he said.
Last week, Fed Chair Janet Yellen roiled financial markets by saying that after the Fed wraps up its bond-buying stimulus, likely before the end of the year, rate rises could come around six months later.
U.S. inflation has been stuck at around 1 percent since early 2013, and Evans said that indicated the need to keep policy accommodative.
“When we get up to 2 percent inflation, we will revert to more normal monetary policy,” Evans said. He expects the federal funds rate to be at 1.25 percent at the end of 2016.
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