Fed’s Evans Links Rate Hikes to Inflation Outlook

The timing of any rise in U.S. interest rates will depend to a large extent on the outlook for inflation, which remains below target, meaning a hike may not come until next year or even 2016, Chicago Fed President Charles Evans said on Monday.

Speaking at a conference in Istanbul, Evans, one of the Fed’s most ardent doves, said inflation needed to get much closer to the U.S. central bank’s 2 percent target before a rate hike could be contemplated.

“Everybody is more comfortable and understanding the current economic conditions are such that (it is) appropriate for monetary policy to remain highly accommodative well into 2015 and you know it could even be 2016,” he said.

Fed officials have been worried that inflation is running well below 2 percent. But there are signs it is starting to tick up. Prices rose 0.2 percent in April, pushing the year-on-year reading up to 1.6 percent – the largest gain since November 2012.

Evans said the Fed’s 2 percent inflation target should not be seen as a ceiling and could be higher.

He forecast U.S. economic growth of around 3 percent per quarter for the rest of this year – possibly a little higher in the current quarter – and said the inventory adjustments that hit first quarter growth would not be a negative factor.

The Fed was expected to complete the tapering of its stimulus plan by the end of this year, he said.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza