Fed's Evans still worried about downside risks, but supports one or two hikes
A top US rate-setter reiterated his relatively dovish stance on monetary policy on Wednesday, telling his audience he still worried that interest rates might be headed back towards the 'zero-bound' at some point in the future.
Chicago Fed president Charles Evans said uncertainties were actually "pretty high", although in his opinion at present the downside risks were not as intense as they once seemed.
"So, in spite of the better situation we find ourselves in today, I still worry about darker scenarios in which we return to the zero lower bound (ZLB). That is one reason why I think it’s so important to get inflation and inflation expectations up to target, so that we have maximum rate cutting capacity," Evans said.
Speaking at the DZ Bank-OMFIF International Capital Markets Conference in Frankfurt, Germany, he also said that for "the first time in quite a while" more notable upside growth scenarios were also possible.
Indeed, the outlook for inflation had improved and unemployment was near the Fed's goals, so he could support another one or two interest rate hikes in 2017, versus two for many of his counterparts.
Economic prospects overseas were looking better than they had for some time, he said, and the "general thinking" was that the fiscal proposals before Congress could boost growth for a time.
Be that as it may, many analysts, and his own research staff, put the sustainable rate of growth of the US economy at below 2.0%, due to slower population growth and technological change.
His staff estimated that rate of expansion lay at roughly 1.75%, "with only a little upside potential over the next few years as various economic headwinds fade."
In that context, he believed a rate of inflation of 2.5% "for a time" was consistent with the central bank's stated symmetric inflation target.
"Indeed, the best way to assuredly get to 2 percent inflation [sustainably] is to do it faster and with momentum. So I believe that a policy path that allows for some possibility of such an inflation outcome is a reasonably acceptable risk to take."
As of 1538 GMT the yield on the benchmark 10-year Treasury note was three basis points lower at 2.39%.