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Chicago Fed's Evans: No need to 'cut rates more' right now

Chicago Fed President Charles Evans says the U.S. economy appears to be in a “good place” and that the Federal Reserve does not need to cut rates further at the moment.

“It’s sort of a mid-cycle correction,” Evans told Yahoo Finance on Wednesday morning in New York. “I don’t see that we necessarily have to cut rates more — we’ll see how the data come in.”

The Fed cut rates for the third consecutive time on Oct. 30, pointing to continued risks in the U.S.-China trade war and geopolitical tensions abroad. Evans, a voting member of the Federal Open Market Committee, supported each of those rate cuts.

Federal Reserve Bank of Chicago President Charles Evans participates in a moderated discussion in Zurich, Switzerland October 11, 2017. REUTERS/Arnd Wiegmann
Federal Reserve Bank of Chicago President Charles Evans participates in a moderated discussion in Zurich, Switzerland October 11, 2017. REUTERS/Arnd Wiegmann

The Fed is now targeting the benchmark interest rate in a range of between 1.50% to 1.75%.

Evans said the consumer looks “very strong” and described the October jobs report as “quite good.” The Bureau of Labor Statistics reported last week that the U.S. economy had added 128,000 non-farm payrolls in October, with the unemployment rate holding at a historically low level of 3.6%.

‘I’d like to see inflation pick up’

Evans said he is closely watching inflation to guide him on the next moves on rates.

“I’d like to see inflation pick up,” Evans told Yahoo Finance, saying it has been a challenge for policymakers to sustainably get to the Fed’s 2% target.

Evans has said in the past that the Fed should provide accommodation until the Fed can credibly guide inflation to the central bank’s 2% target. In March, before the Fed began cutting rates, Evans said that he would be comfortable with inflation running as high as 2.5% to compensate for the Fed undershooting its 2% target over the past few years.

Evans told Yahoo Finance he still expects inflation to reach its 2% target and eventually overshoot it in the future.

Looking back on 2019, Evans said the Fed made “a pretty substantial adjustment” by pivoting from messaging rate hikes, to a stance of “patience,” and then to cutting rates.

In December of last year, Evans projected three rate hikes over the course of 2019. He said Wednesday that the 150 basis point change in projected policy has been dramatic, but expressed optimism that the cuts would support inflation closer to the Fed’s target.

“I think our accommodative stance, from our most recent three cuts, is helpful for achieving that,” Evans said.

The Chicago Fed covers several states exposed to the agricultural and manufacturing sectors at the center of the U.S.-China trade war: Iowa and parts of Illinois, Indiana, Wisconsin, and Michigan. On the manufacturing front, the automobile and heavy equipment industries are showing “a healthy amount” of production in his district. But Evans said passing the U.S.-Mexico-Canada Agreement would be “helpful” to the automotive industry in particular.

In agriculture, Evans said farmers in his district have been helped by government subsidies to counter the negative effects of the trade war. But he said those support payments have not “changed their attitudes” toward holding back on investing more money into equipment.

“Getting the trade policy uncertainty to move off to the side and go away would be extremely helpful,” he said, “so we’ll have to see how that plays out.”

The Fed’s final policy-setting meeting of 2019 will take place December 10 and 11.

Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.

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