(Bloomberg) — Federal Reserve Bank of Chicago President Charles Evans said the central bank will probably raise interest rates in the second half of next year and the timing will depend on the pace of inflation.
"I do tend to think inflation's going to pick up and that will be the reason why we ultimately raise rates," Evans, who doesn't vote on policy this year, said in a Bloomberg Television interview with Betty Liu today in Hong Kong. "My own take is it's most likely to be in the second half of 2015. If I had my druthers, I'd wait a little bit longer than that."
Fed Chair Janet Yellen said at a press conference after a meeting of the Federal Open Market Committee last week that the central bank may wait about six months after it concludes its monthly purchases of bonds before raising the main interest rate. Her comments, along with Fed officials' revised forecasts for faster tightening than previously expected, pushed up yields on U.S. Treasuries.
"It's going to be at least six months, in my opinion," Evans said in the interview before a speech at the Credit Suisse Asian Investment Conference.
Evans told reporters afterward that he would wait until early 2016 to raise interest rates and that he expects a federal funds rate of 1.25 percent at the end of that year. The timing of the first increase isn't as important as understanding the path, and the Fed doesn't necessarily need to raise rates at every meeting, with increases depending on the economy and inflation, Evans said.
Shallower path
"Is it going to be a sharp increase or is it going to be a more shallow increase?" he said in the interview. "We expect it to be a shallower path of increases."
Evans' colleagues have also weighed in on Yellen's March 19 remarks. Atlanta Fed President Dennis Lockhart said six months "is really a minimum, not a maximum," while James Bullard of St. Louis said the timing isn't so different from investor expectations.
In the speech, Evans said that the "current 1 percent inflation situation calls for extended policy accommodation" and that he's "concerned that inflation will not pick up quickly enough." Responding to questions after the speech, Evans said he doubts rates will rise before mid-2015.
The FOMC last week scrapped a pledge to keep zero rates as long as unemployment exceeds 6.5 percent, saying instead that policy makers will look at a wide range of data. Unemployment climbed to 6.7 percent in February from a five-year low of 6.6 percent the prior month.
