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Evans Says Headwinds Since Rate Cut May Mean More Fed Easing

Evans Says Headwinds Since Rate Cut May Warrant More Fed Easing

(Bloomberg) --

Developments since Federal Reserve policy makers cut interest rates last week may present headwinds to the economy that warrant more easing, Chicago Fed President Charles Evans said.

“There is a role for risk management, and you could take the view, as I have, that inflation alone would call for more accommodation than we’ve put in place with just our last meeting,” Evans told reporters Wednesday over breakfast at the Chicago Fed.

“You might take the view that things have perhaps created more headwinds against that, and it would be reasonable to do more than just that. I don’t know. I have to look at it as the data come in,” Evans said. “And you could take the view that the risks now have gone up, and as we think we’re going to get closer to the zero lower bound with higher probability, that would also call for more accommodation.”

The comments indicate some support at the central bank for at least another quarter-point interest-rate cut as soon as the next meeting in September, and possibly more after that. Fed officials reduced their benchmark overnight rate by a quarter point at their July 30-31 policy meeting, citing slowing global growth and too-low inflation. The cut marked the central bank’s first since 2008.

Evans began advocating easier monetary policy in June, after a string of monthly government reports on consumer prices showed inflation was continuing to run below the Fed’s 2% target. At the time, Evans said he thought it would be appropriate to cut interest rates by a half-percentage point by the end of the year.

When asked if the question of whether to cut rates by a quarter point or a half point at the July meeting was a close call for him, Evans said “it was not.”

“I had stated clearly, publicly, in June, that I thought that there was a case on the basis of inflation alone” for a half-point reduction, he said. “I thought the risk management also supported that.”

After last week’s Fed meeting, President Donald Trump announced new tariffs on imported Chinese goods, to take effect on Sept. 1, which led investors to sour on the near-term prospects for a trade deal. The S&P 500 index of U.S. stocks has fallen more than 4% since July 31.

“Financial markets are looking at things that are going on around the world, what we’re doing, what we didn’t do at the last meeting,” Evans said. “I can’t say that I see anything necessarily wrong in how they are reacting, but there is volatility.”

The Chicago Fed chief said officials are watching to see how trade negotiations play out from here and whether there will be a lasting impact on business and investor sentiment.

“We’re kind of looking to see how things are going to proceed, whether or not there’s sort of an acceleration of something not very pleasant, or whether or not we’re going to have more continuity,” he said. “Maybe things will improve. I still am expecting 2-1/4% growth this year. The labor market still looks good.”

To contact the reporter on this story: Matthew Boesler in New York at mboesler1@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Scott Lanman, Alister Bull

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