Chicago Fed President: Rate Hike Timing Doesn’t Really Matter

TL;DR

Charles Evans discusses potential rate hikes and economic growth outlook.

Transcript

when do you hit the bid when do you pull the trigger when does Charlie Evans say we about raise the rate this meeting we're looking at an April meeting we're looking at a June meeting you know one thing for all the you know students in the audience in a world of Finance there's sort of you know fair value pricing what are you know you know what's t... Read More

Key Insights

• Charles Evans suggests two rate hikes in 2016, emphasizing that the timing is not critical and could depend on economic data such as employment and inflation rates.
• Evans highlights the importance of consumer spending as a strong fundamental for economic growth, despite recent weaker-than-expected retail sales figures.
• The Atlanta Fed's GDP forecast was cut due to weak consumer spending, but Evans remains optimistic about growth in the second quarter and beyond.
• Evans forecasts 2 to 2.5% GDP growth for 2016, aligning with last year's figures, but acknowledges the need for above-average growth in subsequent quarters.
• Inflation data has been firmer recently, which could justify confidence in sustainable economic growth, although Evans expresses caution about future trends.
• Negative interest rates are being used by several central banks worldwide to combat disinflation, but Evans warns against the U.S. adopting similar measures.
• Evans stresses the importance of achieving the 2% inflation objective to prevent economic stagnation, referencing Japan's prolonged economic challenges.
• The Fed's approach to monetary policy includes assessing both statistical forecasts and judgmental insights to form a comprehensive economic outlook.

Questions & Answers

Q: What is Charles Evans' outlook on interest rate hikes for 2016?

Charles Evans suggests that there will be two interest rate hikes in 2016. He emphasizes that the timing of these hikes is not critical and can be adjusted based on economic data such as employment and inflation rates. The hikes could occur in the middle and end of the year, but adjustments may be made if the economic indicators change.

Q: How does consumer spending impact Evans' economic growth forecast?

Consumer spending is considered a strong fundamental for economic growth by Charles Evans. Despite recent weaker-than-expected retail sales figures, he remains optimistic about growth in the second quarter and beyond. He believes that the weak consumer spending data is likely transitory and does not significantly alter his growth outlook for the year.

Q: What are the risks to Evans' GDP growth forecast for 2016?

The risks to Evans' GDP growth forecast include weaker-than-expected consumer spending and a potential failure to achieve the necessary above-average growth in subsequent quarters. However, he remains optimistic about stronger growth in the second quarter and beyond, which is crucial to meet the forecasted 2 to 2.5% GDP growth for the year.

Q: What is Evans' view on negative interest rates?

Charles Evans is cautious about adopting negative interest rates in the U.S., despite several central banks globally using them to combat disinflation. He stresses the importance of achieving a 2% inflation target to prevent economic stagnation and warns against the U.S. falling into a situation similar to Japan's prolonged economic challenges.

Q: How does Evans view the recent inflation data?

Evans notes that recent inflation data has been firmer, which could provide confidence in sustainable economic growth. However, he remains cautious about future trends and emphasizes the importance of continuously monitoring inflation data to ensure it aligns with the Federal Reserve's economic objectives.

Q: What role does the 2% inflation target play in Evans' economic strategy?

The 2% inflation target is crucial in Evans' economic strategy as it helps prevent economic stagnation. He believes that achieving this target is essential to avoid a situation similar to Japan's prolonged economic challenges. The target serves as a benchmark to ensure that inflation is at a sustainable level, supporting overall economic growth.

Q: How does Evans incorporate different types of data in forming his economic outlook?

Evans combines both statistical forecasts and judgmental insights to form a comprehensive economic outlook. While acknowledging the value of statistical data, such as the Atlanta Fed's GDP forecast, he also considers broader economic indicators and judgmental assessments to adjust his outlook and make informed decisions about monetary policy.

Q: What is Evans' perspective on the first quarter's economic performance?

Evans acknowledges that the first quarter's economic performance may be weak, with GDP growth potentially around 1%. However, he remains optimistic about stronger growth in the second quarter and beyond. He believes that the weak performance is not indicative of the entire year's outlook and expects improvement as more data becomes available.

Summary & Key Takeaways

• Charles Evans, President of the Federal Reserve Bank of Chicago, discusses the potential for two interest rate hikes in 2016, emphasizing that the exact timing is flexible and will depend on economic indicators such as employment and inflation. He remains optimistic about U.S. economic growth despite recent weak consumer spending data.

• Evans forecasts GDP growth of 2 to 2.5% for 2016, which aligns with last year's growth, but acknowledges that above-average growth is necessary in later quarters to achieve this target. He remains hopeful about stronger growth in the second quarter and beyond, despite a weak first quarter.

• Negative interest rates are being employed by several central banks globally to combat disinflation, but Evans advises against the U.S. adopting such measures. He emphasizes the importance of reaching a 2% inflation target to avoid economic stagnation, citing Japan's economic struggles as a cautionary example.