Friday, March 6, 2015

Wall Street Journal: Fed's Evans Says Delay Rate Hike Until 2016

The consensus wisdom is that the US Fed will begin to raise interest rates sometime this year. Jim Rickards view was that the Fed would not raise rates because the economy is still too weak. While it appears the Fed may be divided on this issue right now, Chicago Fed President Charles Evans is now saying in this Wall Street Journal article that the Fed needs to wait until 2016. Below are some quotes from the WSJ article.


"Raising short-term interest rates off currently near zero levels this year would be a mistake, Federal Reserve Bank of Chicago President Charles Evans said Wednesday.
“We should be patient in raising interest rates,” Mr. Evans said. “I think economic conditions will evolve in a way such that it will be appropriate to delay normalizing monetary policy–that is, to hold off on raising short-term rates–until 2016,” he said.
On one side, “economic activity appears to be on a solid, sustainable growth path,” he said. But, “inflation is low and is expected to remain low for some time–and I have serious concerns that inflation will run even lower than I expect,” the central banker said in the text of speech prepared for delivery at an event in Lake Forest, Ill."
. . . . .
"Mr. Evans and the other Fed officials agree growth and hiring have all been positive, and for many officials, that is enough to support the view rates could begin to increase. But on the other side, the central bank has fallen short of its 2% price target for nearly three years, which argues against any move higher until there is greater clarity inflation gains will move back to levels Fed officials deem desirable."
. . . . 
"The policy maker believes the Fed won’t get to its 2% price target until some time in 2018, which would indicate the Fed could raise rates at some point in the first half of 2016. Mr. Evans also noted that “there is no great cost even if we were to end up with a period of inflation running moderately above 2%. It would just be the symmetric flip side of our recent below-target inflation experience.”
My added comments:
These comments by Charles Evans are supportive of Jim Rickards forecast that the FED would not raise rates in 2015. They also support another Rickards tenet that central banks fear deflation above all else, but don't mind some inflation. He explains why in this recent article.
All this is why we continue to follow Jim Rickards articles and interviews here. More often than not, he will identify important trends before the mainstream media does. It's true that there are others who say things similar to Jim Rickards as well. But Rickards is easy to follow and understand. He makes his views available to the public in articles and interviews. He clearly has connections inside the system which can only help improve his information and forecasts.
 He will miss some forecasts from time to time. But having followed him now for several years, I find that he hits forecasts a lot more than he misses them. Either way, he gives you the reasons and logic for his forecasts. When writing his books he provides independent documentation to support his views. Readers can verify that documentation on their own. That's important. Unfortunately, there are many these days who use "anonymous sources" that are impossible to verify when making sometimes sensational statements or forecasts. It doesn't mean their sources are bad, but it does make them impossible to verify independently. We don't have that issue with Jim Rickards.

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