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In sign of more hawkish Fed, Evans nods to three rate hikes

Friday, January 6, 2017  
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Reuters Business News | Fri Jan 6, 2017 | 2:54pm EST

By Ann Saphir and Jason Lange | CHICAGO

 

CHICAGO Chicago Federal Reserve President Charles Evans said on Friday the central bank could raise interest rates three times this year, faster than he had expected just a few months ago and in line with the majority of his colleagues.

The comments from Evans, a voting member of the Fed's policy committee this year and one of the U.S. central bank's most outspoken doves, were a fresh sign the Fed is gearing up for potentially faster rate hikes in the face of above-potential economic growth and firmer inflation.

"I still think two (Fed rate hikes) is not an unreasonable expectation ... but it's going to depend on how the data roll out, and if it's a little bit stronger, three is not going to be implausible," Evans told reporters after on the sidelines of an American Economic Association conference.

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Two other U.S. policymakers, Cleveland Fed President Loretta Mester and Richmond Fed President Jeffrey Lacker, said Friday they would support even faster rate hikes.

The central bank's policy-setting committee unanimously raised interest rates last month by a quarter of a point and policymakers signaled they expect to raise rates three more times in 2017.

But minutes from that meeting released earlier this week showed policymakers might signal an even more aggressive path of rate increases if inflationary pressures rise, a view that Evans' comments bolstered.

Incoming U.S. President Donald Trump has promised to double America's pace of economic growth and "rebuild" the country's infrastructure.

Evans said Friday he had joined many of his colleagues in factoring extra fiscal stimulus into his forecasts. He has gained confidence, he said, that the economy will grow 2 percent to 2.5 percent this year and inflation will move up to the Fed's 2-percent target by next year.

Still, Evans warned, unless accompanied by an unexpected burst of improvement in productivity or labor, faster growth could "eventually put strong pressure on resources and drive up wages and inflation," forcing the Fed to raise rates in response.

“I’ve been a little more, seeing a little more strength in the economy,” Cleveland Fed's Mester told Fox Business Network on Friday, adding that more than three rate hikes this year is "probably" appropriate.

Richmond Fed's Lacker, one of the Fed's most prominent hawks, agreed, saying the Fed "may need to increase more briskly than markets appear to expect."

Markets currently are pricing in two or three rate hikes this year.

(Reporting by Ann Saphir and Jason Lange in Chicago and Lindsay Dunsmuir in Washington; Editing by Chizu Nomiyama)


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