MNI POLICY: Fed's Evans Says More Stimulus May Be Needed

By Greg Quinn

     CHICAGO (MNI) - Chicago Fed President Charles Evans said one or more

further rate cuts could be needed to boost an economy that is facing weak

inflation, and that he was still mulling the impact of the new round of trade

brinksmanship.

     Evans said there was already a case earlier this year for 50 basis points

of accommodation based just on inflation undershooting the Fed's target, and

policy makers now need time to assess the impact of new trade tensions. The

neutral policy rate is 2.75% and perhaps lower in the short term, he said.

     "Fifty basis points of accommodation is a better setting. Is it enough? I

won't know until we look at the data and have those discussions," Evans told

reporters Wednesday at the Chicago Fed headquarters. "When the chair talks about

this as a mid-cycle adjustment, this is part of how some people might be

approaching that discussion."

     "Adjusting from 50 above neutral to something more like 50 below neutral I

think is sort of the mid-cycle adjustment that I have in mind as we go forward

here," Evans said, speaking of the Fed's shift in direction. "My economic

outlook is still for 2.25% growth this year, but it's on the basis of ever so

slightly less restrictive monetary policy than I had before."

     The timing of accommodation is less important than signaling the Fed is on

guard against potential headwinds like trade, he said. Investors are betting the

Fed's first rate cut in a decade on July 31 won't be the last because President

Donald Trump said he will impose 10% tariffs on the remaining $300 billion of

imports from China. Trump's sudden shift of focus away from renewed bilateral

trade talks to a full trade war between the world's two largest economies has

sent stock prices and bond yields tumbling.

     "We don't really know exactly what the downside risks are at the moment,"

Evans said. "I think if we saw something we would move."

     Evans voted with the majority on the FOMC last Wednesday to lower the Fed's

key rate by a quarter point to a target range of 2.00% to 2.25%, while two

dissenters said there should have been no change. Trump on Thursday announced

the tariffs on China would take effect in September. 

     While the fundamentals of the U.S. economy remain strong including the

labor market, inflation remaining low for so long has been a disappointment,

Evans said. 

     Evans repeated comments that he made in June that two rate cuts this year

would be needed to bring inflation to his projection of 2% or a little faster.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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