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Fed’s Evans Wanted Rates on Hold Until Mid-2018 to Lift Inflation

Matthew Boesler, Jeanna Smialek
Charles Evans, president of the Federal Reserve Bank of Chicago, speaks during an Economic Club of Grand Rapids luncheon in Grand Rapids, Michigan, U.S., on Monday, Sept. 25, 2017. Evans said that he was “broadly comfortable” with the median estimate of the Fed's latest quarterly projections, which showed its benchmark policy rate ending 2019 at 2.7 percent.

Federal Reserve policy dove Charles Evans argued for a six-month delay in raising interest rates when U.S. central bankers met in December, because he wanted to give tepid inflation a chance to rise. He lost that debate and they increased rates anyway.

Four weeks later, during which time 10-year Treasury yields have risen by almost a quarter percentage point to around 2.6 percent, the president of the Chicago Fed remains pessimistic about the prospects for U.S. price pressures to heat up.

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“I don’t see any evidence of inflation moving up really fast, or even moving up enough,” Evans told reporters Wednesday after speaking in Lake Forest, Illinois, where he disclosed that at the Dec. 12-13 policy meeting he thought “it would be good to sort of put off the increases until about the middle of this year just to make sure the inflationary concerns resolve themselves.”

The December hike was the third increase of 2017 and comes as Fed officials balance the risks of a hot labor market against weak inflation, which has been under their 2 percent target for most of the last five years. Policy makers also raised their forecasts for 2018 growth a bit in anticipation of a boost from a $1.5 trillion package of tax cuts, which President Donald Trump signed into law on Dec. 22.

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Three Hikes

Long-bond yields have been moving higher since last month, buoyed by a range of factors including the prospect of extra Treasury supply to finance the shortfall in U.S. budget needs since the tax cuts, as well as events abroad. Yields rose further on Wednesday after a report that Chinese officials have recommended slowing or halting purchases of U.S. Treasuries. China has the world’s largest holding of foreign exchange reserves.

Evans and Minneapolis Fed President Neel Kashkari dissented against the December rate increase and both cited low inflation among the reasons for their opposition. Evans said Wednesday he didn’t expect inflation to rise to 2 percent until the end of 2019 or 2020.

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Officials penciled in three rate increases this year in quarterly forecasts they released last month, according to their median forecast, which is displayed in a dot plot. Evans declined to say how many moves he projected. Dallas Fed President Robert Kaplan, speaking separately on Wednesday, said he backed three moves this year.

“We’re going to have to watch, because we want to avoid a situation where we have such an overheating that we’re playing catch-up,” Kaplan said. “Cyclical pressures are building substantially, and they will offset some of the structural headwinds. We will have to see.”

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