Fed’s Evans, Often a Dove, Doesn’t See Need for Another Rate Cut

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One of the Federal Reserve’s usually more dovish policy makers doesn’t see the need to cut interest rates again because two recent reductions should be enough to lift inflation above the central bank’s 2% target.

“We’re pretty well positioned now to see how things play out from here,” Chicago Fed President Charles Evans said Wednesday in Lake Forest, Illinois. “I was able to generate a bit of overshooting for our inflation objective over the forecast horizon with simply the cuts that we agreed to and so I did not have another rate cut in there,” he said, adding that he sees price pressures reaching 2.2%.

Evans, a voter this year on the rate-setting Federal Open Market Committee, backed its rate cuts in July and again this month.

The easing following three years of tightening between 2015 and 2018 as officials reversed course in the face of slowing global growth, trade policy uncertainty and muted inflation.

Forecasts in the Fed’s dot plot released when officials cut rates last week showed five didn’t favor the quarter percentage point reduction, five backed it, and a further seven projected a total of 50 basis points of easing by year-end, including the Sept. 18 cut.

Evans’s remarks show he was not among seven officials projecting another cut at either the FOMC’s meeting next month or in December.

The Chicago Fed chief said the U.S. economy is still strong and the outlook positive, thanks to solid consumer spending. But he added that business investment has been weak and several international risks, including Brexit negotiations in the U.K. and a slowing Chinese economy, are tempering enthusiasm in financial markets.

“Fundamentals are good,” he said. “This could continue, but there is that uncertainty and perhaps fragility.”

That sentiment was echoed Wednesday by Fed Governor Lael Brainard, who told a House panel on financial stability in Washington that the economy was supported by a strong consumer and solid labor market, while global headwinds create risks.

“You see wages growing above the rate of inflation but you also see business sitting on the sidelines, capex flattening out, a lot of uncertainty out there,” she said, citing trade policy and a cooler world economy. “We’re watching that very closely, and in my own view it poses downside risks and that’s why it made sense to soften the path of monetary policy.”

Dallas Fed President Robert Kaplan made a similar point later on Wednesday, telling an audience in Dallas that “the trade deal with China by itself -- I think even if we didn’t make one we could still have solid economic growth. Trade uncertainty is another matter.”

He also called the odds of a recession in the next 12 months “relatively low” but a bit higher in the next 24 months.

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