Chicago Federal Reserve Bank President Charles Evans on Wednesday offered a lukewarm endorsement of an interest rate increase later this year, despite his worry that inflation is still undershooting the U.S. central bank's 2 percent target.
"I think the real economy is doing quite well in the U.S., especially given all the headwinds we are facing," including slower growth in Europe and China, Evans told reporters in a group interview in Chicago.
"I do think that perhaps one rate increase could be appropriate this year," he said, adding later in an aside, "even if I would prefer none until we saw inflation much more strongly."
The Fed, encouraged by falling U.S. unemployment, raised its benchmark overnight lending rate last December for the first time in a decade, but a stronger dollar, slower growth abroad and uncertainty over the domestic economic outlook has kept it from making any further increases.
With the near-term risks to the U.S. economy receding, according to the Fed's latest policy statement last week, policymakers appear split on the best course ahead.
Atlanta Fed President Dennis Lockhart earlier this week said it was too early to rule out a rate increase at the next Fed policy meeting in September, while New York Fed President William Dudley urged caution and said negative shocks more likely than positive ones for rest of 2016.
Evans, who is not a voting member of the Fed's rate-setting committee this year but participates in its deliberations, has long been one of the central bank's most vocal doves, preferring to keep rates low to give the economy more of a boost even at the risk of pushing inflation temporarily above the Fed's goal.
On Wednesday, he reiterated his view that it would be better to wait until inflation reaches 2 percent before raising rates, or at least until the probability of it rising above that level exceeds the likelihood of it staying below.
Inflation based on the Fed's preferred gauge is now 1.6 percent. Failure to reach the Fed's inflation goal would undercut the central bank's credibility and make it harder to use interest rates to manage the economy in the future, Evans warned.
Still, Evans signaled he would not stand in the way of the gradual increase in rates that Fed Chair Janet Yellen has long said would be coming.
While the U.S. economy will probably grow only 1.5 percent to 1.75 percent this year, Evans said that level of growth could be enough to push unemployment, now at 4.9 percent, closer to the 4.75 percent he sees as consistent with full employment.
(Reporting by Ann Saphir; Editing by Paul Simao)
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Updated Date: Aug 04, 2016 00:00 AM