Fed's Evans sees case for deferring U.S. rate hikes for years

Fri Jun 3, 2016 5:42am EDT
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By David Milliken and Andy Bruce

LONDON (Reuters) - Chicago Fed President Charles Evans called into question the likelihood of a U.S. interest rate hike this summer, saying he saw a "reasonable case" for delaying higher borrowing costs until core inflation reaches the Fed's goal of 2 percent.

Based on current Fed forecasts, such an approach would keep U.S. monetary policy on hold until 2018.

Speaking in London, Evans said he was not sold on holding off on rate hikes for so long and his base case for appropriate policy remained to raise rates twice by the end of 2016 although the precise timing of the hikes was not so important.

That is the rate-hike path that most Fed policymakers projected in March, the last time they gave public forecasts.

But the idea of keeping interest rates at their current range of 0.25 percent to 0.5 percent until core inflation reaches 2 percent also had "some attraction" as a policy option.

The Fed holds its next policy meeting on June 14-15. Traders expect the Fed to go ahead with a mid-summer rate hike as long as the U.S. economy bounces back from slow growth in the first quarter and continues to add jobs.

The U.S. Labor Department issues its closely watched monthly jobs report at 1230 GMT on Friday.

Fed officials have flagged encouraging signs that inflation will soon head back up toward the Fed's 2 percent target.   Continued...

Chicago Federal Reserve President Charles Evans listens to a question at the Chicago Banking Symposium in Chicago, Illinois, United States, June 3, 2015.    REUTERS/Jim Young