Shake it off, Fed (a rate hike, that is)

Just say no.

That’s the message Chicago Federal Reserve Bank President Charles Evans is sending to his colleagues at the central bank about raising interest rates.

Evans, speaking at a Rotary Club event in Illinois, says it would be a bad idea for the Fed to increase borrowing costs in June as many expect.

Given uncomfortably low inflation and an uncertain global environment, there are few benefits and significant risks to increasing interest rates prematurely.

Evans says the Fed should hold off until 2016.

None of this surprises Yahoo Finance’s Aaron Task, who notes Evans has long been known for opposing interest rate increases.

“He’s a dove,” Task says. “So he wants to see the whites of the recovery’s eyes and he wants to see a pickup in inflation because there is no inflation as the Fed measures it.”

But Task also believes that Evans is solidly in the minority among members of the Federal Open Market Committee.

“Stan Fischer last week on CNBC said there is a high probability of a rate hike sometime this year,” Task adds. “He’s the vice chair, he’s got Janet Yellen’s ear and I think he’s speaking more to where the FOMC is right now. I would look at Evans as a bit of an outlier.”

However, Yahoo Finance Senior Columnist Michael Santoli feels the Fed doesn’t have a problem with Evans being that “outlier” speaking out against an interest rate move.

“He’s out there by himself but I think he’s being allowed to be out there by himself,” Santoli points out. “Janet Yellen’s message has been consistent-- we’re going to listen to the data, we want to be sure, we don’t want to go early, we want to go at the appropriate time. So you want to have a senior Fed official out their voicing that point of view.”

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In the minutes of its January meeting, the Fed reiterated it would be data dependent in deciding when to raise rates. And Task says that makes sense.

“It’s good for the Fed to be data-dependent,” he argues. “The idea that they are going to go on some artificial timetable is off, and I think Janet Yellen stressed that last week.”

Plus, Santoli notes, Wall Street isn’t convinced a rate hike is definitely coming in June.

“The market is not willing to say just yet if it’s going to go one way or another,” he says. “We’re still in confusion land here when it comes to what the Fed policy is going to be. That’s why the March meeting is so important because Janet Yellen said it would be at least two meetings after they got rid of that word ‘patient’ before they actually make a move. So if it goes in March it could mean we have June on the table.”

But Santoli adds that even if the Fed does decide to act then, the impact really won’t be that significant.

“Nobody thinks that going up a quarter or a half percentage point is really going to affect the inflation outlook,” he says.

 

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