Fed's Evans calls for pause, but sees three more interest rate hikes

A top US central bank official sounded a relative 'hawkish' stance on Wednesday when compared with recent more 'dovish' remarks from several of his peers, even as he appeared to call time on the Federal Reserve's rate hiking campaign.

Indeed, he appeared to signal that a pause in interest hikes would likely be appropriate over the first half of 2019.

In remarks prepared for a speech at the Discover Financial Services Company Meeting in Riverwoods, Illinois, the President of the Federal Reserve bank of Chicago, Charles Evans, said he expected the Federal Reserve to "eventually" push rates up slightly into so-called 'neutral' territory.

"If the downside risks dissipate and the fundamentals continue to be strong, I expect that eventually the fed funds rate will rise a touch above its neutral rate - say up to a range between 3% and 3.25%."

Nevertheless, he added that: "I think developments in the first half of 2019 will be very important for making this assessment of our future monetary policy actions."

And what about the timing? Evans said that: "Because inflation is not showing any meaningful sign of heading above 2 percent in a way that would be inconsistent with our symmetric inflation objective, I feel we have good capacity to wait and carefully take stock of the incoming data and other developments. If they warrant meaningful adjustments to my modal outlook or the balance of risks to the economy, then I would change my views of the appropriate path of policy accordingly."

The policymaker, who was a voting member of the Federal Open Market Committee in 2019, was expecting US economic growth a bit above 2.0% in 2019 and the rate of unemployment to decline to 3.5%, alongside inflation a tad above 2% over the next three years.

Economic growth should then moderate a bit more to about its longer-run potential in 2020, he said.

His contacts were reporting higher input costs and wages, but later he went on to add that a rate of price gains closer to 2.5% "would not be a big concern."

Evans's modal forecast was for inflation to average a touch above 2.0% over the next three years.

"As the FOMC noted in its December policy statement, as we go forward we will be in a data-dependent mode—which means we will continually monitor global and financial developments to assess their implications for the economic outlook and the stance for policy."