U.S. Markets open in 1 hr 11 mins

Fed's Evans again councils patience on raising rates

Chicago Federal Reserve Bank President Charles Evans speaks during the Sasin Bangkok Forum July 9, 2012. REUTERS/Sukree Sukplang

(Reuters) - The Federal Reserve should be "extraordinarily patient" when it comes to raising interest rates, because doing so too soon could choke off recovery and force the U.S. central bank to cut rates back to zero again, a top Fed official said on Friday.

While asserting his optimism that the economy will grow at a 3-percent pace over the next 18 months or more, Chicago Federal Reserve Bank President Charles Evans told a community banking conference that the expectation inflation will return to 2 percent is "more of a hope than anything we’ve seen in the data."

Even with labor market slack diminishing, downside risks remain, including weakness in global economies and the strengthening of the U.S. dollar, which pushes down on U.S. inflation, he said.

But the biggest risk, he said, is raising rates prematurely, which could consign the United States to the kind of stagnation that affected it in the 1930s and that dogs Japan today.

(Reporting by Ann Saphir; Editing by Chizu Nomiyama)