Fed’s Evans is Optimistic for Inflation

Citing rising 10-year U.S. Treasury yields and his forecast for about 2.25 percent economic growth next year, Chicago Federal Reserve President Charles Evans said on Monday he expects interest rate hikes to continue to rise as the economy improves.

“We are on the cusp of a period of rising interest rates,” Evans told reporters after a speech in Chicago.

The yield on the benchmark 10-year Treasury note, which has risen to about 2.4 percent from below 2 percent before President-elect Donald Trump’s surprise Nov. 8 victory, suggests markets are pricing in somewhat higher U.S. inflation, Evans said.

Evans has long been concerned that inflation, running at about 1.7 percent, is too low. He noted on Monday that while the U.S. labor market is “kind of tight,” wage growth is weak.

Still, Evans is optimistic that conditions are ripe for inflation to rise back to the Fed’s 2 percent target, especially given the policies that the incoming Trump administration has “earmarked” for the next few years. Trump has said he plans to cut taxes and improve U.S. bridges, roads and tunnels.

“An infrastructure plan would be terrific, that would be good,” Evans said. “I think corporate tax rationalization would be a huge improvement.”

Speaking to reporters later, Evans suggested he is not advocating a huge government infrastructure spending bill, saying, “you don’t need explicit stimulus” with the jobless rate already so low.

He declined to comment on whether he was worried that any of Trump’s plans could damage the economy, saying he was still learning about the new administration’s policies and would be patient in assessing them. Some economists have said they fear Trump’s anti-trade rhetoric could lead to policies that hurt growth.

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