The president of the Federal Reserve of Chicago, Charles Evans, made his projection that the interest rates could be comfortably superior to the so-called neutral rate, a projection that has been that the stock market widely expects the Fed to continue with the reinforcement policy until 2019.
This means that the Fed could raise rates up to four times next year, Evans said on Friday at the Fixed Income Forum in Chicago.
In November, the Fed maintained its benchmark target for rates with no variation in a range of 2% to 2.25%, but a 10-point increase in December is still highly expected by the markets as the central bank continues neglecting the extraordinary response he launched to revive the economy from the financial crisis 10 years ago.
Evans stressed on Friday that neutral policy is a "vague" notion. A neutral Fed fund fee is placed at 2.75%, but says other Fed members may have a different idea. And thinks that the Fed fund rate could reach 3.25% or 50 basis points above "neutral" next year.
The official Fed projection, a survey on different views of the bank, picks up three price increases next year. Evans said on Friday that he believes that three or four paths are more likely in 2019. Evans, which became heavier than in the early days of the speed-opening cycle, takes its turn in the policy rotation panel in 2019.
As for the current policy, the Fed is a little less neutral "but getting closer, this is starting to scale some of the risks we have seen," including inflation, Evans said. The neutral rate refers to the type of interest that neither drives nor prevents economic expansion.
The head of the Chicago Fed said and repeated on Friday that it expected the long-term inflation rate to hit near the 2% target of the central bank or above. You saw little risk today that inflation goes far below that target.
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It fell by approximately 7% from the end of September to mid-November in part due to concerns about rising lending costs.
But Evans said that even with rising rates, there is little on the horizon to derail the economy, which should inspire the market. Evans even offered a tight link to confidence in the stock market: "Business people are really smart and should know what they are doing. They are giving away capital like [share] Buy back, they should feel very optimistic. "
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Evans was asked about the intensification of risks abroad, as Europe faces the economic downturn and its own trade in a brief separation of Brexit, and as China's expansion has diminished its vulnerability. The head of the Chicago Fed admitted that global issues are and should be a frequent issue among policy makers, but added that there is nothing in the immediate horizons abroad that will re-think their expectations for an economic growth of 2.2% in 2019. It already thinks that the growth of the GDP will take in 2021 a sustainable tendency in the long term in 1.75% or more down.
He also wondered whether the evidence of a debilitating real estate market, including the red flag of the construction industry above the cost of materials, the tariffs and the weakening of demand, presented the rising risks of a consumer-driven fall, especially if the increases of Mortgage rates produced a more disordered housing. the withdrawal from the market that the metallic, controlled by the opening of the Fed would indicate.
Evans said the recovery of housing was not so uniformly extended in all income groups as the crisis as it was for other expansions and problems such as the swelling of student debt may force the financial status of property owners. Having said that, you are seduced by the more manageable home scales than during the recession.
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"There is no big risk holder at this time," he said. "Global growth, housing is all in the mix, but not enough to bother [growth] trajectory [of GDP running at an above-trend 2.5% next year] what I have in mind ".
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