Fed's Evans: U.S. rate cuts should support growth

By Nick Olivari

NEW YORK (Reuters) - A number of factors are holding back U.S. growth, but interest rates are now at a level that should help bolster the economy starting in the second half of 2008, Chicago Federal Reserve Bank President Charles Evans said on Wednesday.

"The policy actions taken in March, in combination with earlier moves, should help to promote moderate growth over time and moderate the risks to economic activity," Evans said in a speech to the New York Association for Business Economics.

"The effects of last fall's rate cuts are probably just beginning to be felt, and the cumulative declines should do more to promote growth going forward," he said.

Evans said in a question and answer question with reporters that the outlook for an improvement in economic conditions in the second half of the year is based on one-time U.S. income tax rebates and the expected impact of interest rate cuts, and may be adjusted.

"We are in the first half right now and that is a forecast," he said.

As growth starts to rebound, the central bank needs to be "mindful" of inflationary pressures, especially as core inflation runs at undesirably high levels, he said.

The policy-setting Federal Open Market Committee has lowered its benchmark federal funds rate by 300 basis points since mid-September, to the current 2.25 percent from 5.25 percent. In the most recent move, the Fed last week cut the fed funds rate by 75 basis points.

Financial markets currently look for another one-quarter point rate cut in April.