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Fed's Evans says may be worth waiting to year-end to assess next rate hike

  • Chicago Fed President Charles Evans thinks the central bank should slowly raise interest rates.
  • Evans believes the Fed achieved its goal of full employment.
  • But the Fed had a "serious policy outcome miss" on its other goal of 2 percent inflation, Evans says.

Chicago Federal Reserve President Charles Evans said on Monday it may be worthwhile for the U.S. central bank to wait until year-end to decide whether to raise rates again.

Given the recent softening in inflation data, "I don't see why we would not be served to allow more time to wait," Evans told reporters after his speech before the Money Marketeers of New York University.

In earlier prepared remarks, Evans said with inflation stubbornly soft despite a 16-year low in the U.S. unemployment rate, the Federal Reserve should move only slowly to raise interest rates and trim its massive bond portfolio.

"I don't want to get hung up over small differences" between whether the Fed raises rates two, three or four times over the course of 2017, Evans said in remarks prepared for delivery to Money Marketeers of New York University. "The important feature is that the current environment supports very gradual rate hikes and slow preset reductions in our balance sheet."

Repeating much of a similar talk he gave in May, Evans said that while the Fed had essentially achieved its goal of full employment, it has had a "serious policy outcome miss" on its other goal of 2 percent inflation.

Unemployment fell to 4.3 percent in May, below what many Fed officials say is sustainable in the long run. But inflation, which by the Fed's preferred gauge fell to 1.5 percent in April, has run below the Fed's 2 percent target for years.

Despite his warning on too-low inflation, Evans last week cast his vote with the 8-1 majority at the Fed who supported lifting the target range for short-term interest rates by a quarter of a percentage point. Interest rate hikes are typically aimed at slowing growth and inflation.

Fed officials also reaffirmed their expectation of one more rate hike in 2017, bringing the total for the year to three, and said they expect to begin allowing the $4.5 trillion balance sheet to shrink by an initial $10 billion a month. On the margin, a small

er Fed balance sheet delivers less downward pressure on longer-run borrowing costs.

"It remains to be seen whether there will be two rate hikes this year, or three, or four or exactly when we start paring back reinvestments of maturing assets," Evans said. "Ultimately, our exact actions will appropriately be driven by how events transpire to influence the outlook for achieving our policy goals."

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This story was updated to include remarks to reporters after a prepared speech.