Chicago Fed chief Evans says there might be value in holding off on rate hikes

The economic backdrop has improved sufficiently such that two further interest interest rate hikes will be appropriate in 2016, but there might be arguments to be made in favour of holding off until core inflation has reached 2%, a top US central bank official said.

In remarks to Bloomberg TV, the president of the Federal Reserve bank of Chicago, Charles Evans, said: “Economic conditions have improved. I expect it will be appropriate to raise the Fed funds rate twice in 2016.

Unfortunately, I think it will take three years or more to get inflation up to our 2% objective.

“What if we thought it was even more important to get to 2% inflation sooner and solidify firmer inflation expectations which have been lower, are a little bit lower of our 2% objective, there might be some value to think about holding off until we get core inflation up to 2%.

“That is not what I expect policy to be, but I think its worth getting inflation expectations up that are more consistent with our objective.

“We think inflation is moving up, we have more confidence than we had before and the data have rolled in reasonably well so far.

“The expectation from the 17 participants is likely to be two moves this year. So, one could be in June, one could be in July.

“I think the markets have heard us and I think that Chair Yellen´s comments in Boston the other day helped solidify that.

“But sure, if we think that it is appropriate to move, we can do that.”

When queried about the mismatch between the expectations for interest rate hikes embedded into financial markets versus US rate-setters´ own projections, Evans answered: “I do not see anything that´s particularly troubling, I think that everybody will catch up. We are not talking about such a substantial move that it should be a big surprise either way.