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Fed’s Evans adopts cautious stance on rate hikes

The Federal Reserve Building in Washington.

LARRY DOWNING/REUTERS

U.S. central banker Charles Evans is advocating a wait-and-see approach for the next round of interest rate hikes as the U.S. Federal Reserve normalizes its expansive monetary policy.

"I really don't see any harm in waiting longer to take more stock of the inflation situation," Chicago Federal Reserve Bank President Evans told reporters after an event in Zurich on Wednesday.

"I think we would be well served by trying harder to get it (inflation) up, even if inflation went to 2.25 per cent or 2.5 per cent. We need to see substantial progress of inflation in the data."

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The Fed has already raised interest rates twice this year and is widely expected to do so again in December, despite stubborn low inflation remaining below its 2 per cent target.

Evans, who is an influential dove at the Fed, said the U.S. economy was in good health at present, but remained cautious about the retreat from the extraordinary measures the central bank introduced to support the U.S. economy after the global economic crisis.

"It is important we get inflation to 2 per cent as soon as we can," Evans said. "I've been supportive of our gradual pace to date, the four increases we have had so far have been fine."

But he said he was a "little nervous" that unless inflation expectations start to move up "the next couple of moves may not be very constructive."

"I really think it is important to position ourselves well for the next several years for what we might be facing.

"A risk management approach has a lot of merit at this point," said Evans, adding he wanted to see more data before he had confidence that inflation was really increasing in a sustainable way.

"I do have colleagues who have a lot of confidence that inflation is going to be moving up. I see it in their forecast and my own forecast has inflation moving up to 2 per cent by 2019."

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The fundamentals of U.S. economy are "really, really strong," Evans said. "If anything they are getting better."

But despite U.S. consumers were doing well and employment rising, wages were not increasing as strongly as expected, he said.

"There is room for a very honest discussion later this year whether this is the right time to raise rates," Evans said.

"If I put a forecast together of how to get to inflation of 2 per cent by 2019, I think we have to wonder if we need a little more accommodation or continued accommodation," he said.

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