Evans Says Fed Must Send Strong Signal of Gradual Rate Increases

Fed's Dudley: Conditions for Liftoff Could Be Met Soon
  • It's `critically important' for Fed to communicate clearly
  • Evans: may be appropriate to keep rates under 1% by end-2016

Regardless of when it begins raising rates, the Federal Reserve must be clear that the pace of future increases will be gradual, said Federal Reserve Bank of Chicago President Charles Evans.

QuickTake Forward Guidance

"It is critically important to me that when we first raise rates the FOMC also strongly and effectively communicates its plan for a gradual path for future rate increases," Evans said, referring to the U.S. central bank’s policy-setting Federal Open Market Committee during a speech Thursday in Chicago.

In a statement released following the last gathering of policy makers on Oct. 28, the FOMC said it would consider raising the benchmark federal funds rate at its "next meeting" in December if the labor market improved further and participants were "reasonably confident" that inflation would rise to their 2 percent target over the medium term.

December Liftoff

Top officials including Fed Chair Janet Yellen and New York Fed President William C. Dudley have said since then that December is a live meeting for a rate move if their economic forecasts stay on track, and markets are pricing a high probability of such an outcome.

The federal funds rate has been held near zero since December 2008. Evans, one of the committee’s most dovish members, said he favors "a somewhat later liftoff than many of my colleagues" due to his lack of confidence in the outlook for inflation rising back toward the central bank’s 2 percent goal.

Evans, a voting member on the committee this year, stressed that an even more gradual approach to raising rates than is implied by FOMC projections, which show increases once per quarter on average next year after liftoff, is warranted once the process begins.

"Given my economic outlook and assessment of risks, regardless of the exact date for liftoff, I think it could well be appropriate for the funds rate to still be under 1 percent at the end of 2016," he said.

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