Federal Reserve Bank of Chicago President Charles Evans would like to see the Fed hold off on hiking rates until the middle of 2018, saying the central bank can be patient in waiting for data to show stronger inflation numbers.
"If we get to that point and have more confidence that inflation is moving up sustainably, then further rate increases would be warranted," he said at an Iowa event Feb. 7, according to prepared remarks. "In contrast, suppose inflation picks up more assuredly, as many expect. Then, we still could easily raise rates another three or even four times in 2018 if that were necessary. And I would support such a faster pace if the data point convincingly in this direction."
The Fed's preferred inflation gauge stayed unchanged at an annual gain of 1.5% in December 2017, though that again undershot the Fed's 2% goal. Evans is not currently a voting member of the policy-setting Federal Open Market Committee.
"There is a hint" that inflation is already strengthening and may continue to do so given tight labor markets, he said, noting a recent pickup in wage growth data and conversations with business contacts who say they are increasing pay. He predicted the Fed may hit its 2% inflation target in late 2019 or 2020, though he noted that is "still just a forecast" and may not turn out to be accurate.
One area of concern, he said, is that the public's expectations of inflation may have dropped below the 2% target, which can hold down actual inflation as workers may ask for more limited wage increases and businesses change their pricing decisions.
Evans, who was an FOMC voter last year, dissented on the FOMC's rate hike in December 2017 over the same concerns. Overall, though, he said he agreed with the general FOMC strategy of gradually raising interest rates to normalize monetary policy.
He also said the U.S. economy is "firing on all cylinders and has plenty of momentum heading into this year," helped in part by the recently passed tax cuts, though he is still not sure what the cuts' long-term effects will be. He said U.S. GDP would grow by about 2.5% to 2.75% in 2018, and that growth would slow slightly as the effects of the tax cuts subside, and that unemployment would drop to about 3.5% by the close of 2020.
