Chicago Fed president favors gradual rate hikes

Chicago Fed President Charles Evans speaks to more than 100 local business owners and officials at the Lakeshore Chamber of Commerce's annual Business Expo at Dynasty Banquets in 2013. He told steel executives in Chicago Sunday that he would prefer to wait until next year to raise interest rates, since he's not confidence inflation is rising enough yet.

CHICAGO | Interest rates are going to rise for the first time since 2006, and now the only question is when.

Federal Reserve Bank of Chicago President and Chief Executive Officer Charles Evans urged caution and said he thought the central bank should wait until halfway through next year.

But Evans said he didn't think it would greatly harm the economy if the Fed went ahead and raised rates at its December meeting, provided the increases were gradual.

National unemployment stands at 5.1 percent, just slightly above the 4.9 percent economists believe reflects a sustainable level of employment in a healthy economy. However, labor rate participation is low, wages are largely flat, and a large number of people are working part-time who would prefer to be working full-time, Evans told a crowd of steel executives at the World Trade Association conference in downtown Chicago.

He's not convinced inflation is rising fast enough to merit raising interest rates this year and would prefer to wait until next year.

"A patient approach is warranted," he said.

Keep reading for FREE!
Enjoy more articles by signing up or logging in. No credit card required.

Raising rates too early could have negative consequences for the economy, stifling consumer demand, Evans said. The Fed then would have to reduce rates and turn again to unconventional measures – likely quantitative easing, or injecting more money into the financial system – to stimulate more economic growth.

Central banks raised interest rates too soon in Europe and Japan, and their economies still haven't fully recovered, Evans said.

The United States will still need to raise its interest rates soon, however, because gross domestic product has grown at a "fairly solid though not spectacular," rate and the job market has consistently improved.

"The economic outlook is good," he said. “We expect growth in 2016 and 2017.”

The steel industry, a linchpin in Northwest Indiana's economy, is rebounding on the strength of strong auto sales, but durable goods remain a concern. Sales of washing machines and other appliances made with steel have been spottier.

Evans said he expects a correction in the steel industry to fix overcapacity, meaning mills or finishing lines would be closed somewhere.


Business Reporter

Joseph S. Pete is a Lisagor Award-winning business reporter who covers steel, industry, unions, the ports, retail, banking and more. The Indiana University grad has been with The Times since 2013 and blogs about craft beer, culture and the military.