Fed’s Evans wary of rate increases after weak first quarter GDP

NEW YORK – Federal Reserve Bank of Chicago President Charles Evans said he needs to see signs that weak U.S. economic growth in the first quarter was temporary before he would feel comfortable raising interest rates.

“Economic activity appears to be on a solid, sustainable growth path, which, on its own, would support a rate hike soon,” he said in remarks prepared for a speech Monday in Columbus, Indiana. “However, the weak first-quarter data do give me pause, and I would like to see confirmation that they are indeed a transitory aberration,” he added, reiterating his position that it probably won’t be appropriate for the Fed to to begin raising its benchmark federal funds rate until “sometime in early 2016.”

The policy-setting Federal Open Market Committee, which has held the main rate near zero since December 2008, said in its policy statement released April 29 that some of the headwinds holding back the U.S. will probably fade and give way to “moderate” growth. Evans, 57, votes on the FOMC this year.

The world’s largest economy expanded at a 0.2 percent percent annualized pace in the first quarter, down from 2.2 percent in the previous three months, restrained by harsh winter weather, the appreciation of the U.S. dollar, a sharp decline in oil prices, and delays at West Coast ports. Growth will rebound to 3.1 percent in the second quarter, a Bloomberg survey of economists shows.

“It goes without saying that we need to see continued improvements in labor markets and solid GDP growth,” Evans said. “Even though we have made great strides, the economy has not yet returned to full employment, and we must be confident that growth will be adequate to get there.”