* Evans sees rates at 1.25 percent at end of 2016
* Evans' rate view marks him as second-most dovish at Fed
(Adds Evans prefers early 2016 rate rise)
By Michael Flaherty and Saikat Chatterjee
HONG KONG, March 28 The U.S. Federal Reserve
would do best to keep rates at rock bottom until early 2016 and
then raise them only gradually so as not to risk derailing a
building economic recovery, a top Fed official said on Friday.
"I personally doubt that the funds rate is going to start to
increase before the middle of 2015," Chicago Federal Reserve
Bank President Charles Evans told a Credit Suisse investment
conference in Hong Kong.
According to Market News International, he told reporters
afterwards: "It's more likely to be late, after the middle of
2015. I'd actually hold off until early 2016 for the funds rate
Evans added he expects the federal funds rate to be at 1.25
percent at the end of 2016.
That view marks Evans, who does not vote this year on Fed
policy, as the Fed's second-most dovish policymaker, with only
one of his colleagues seeing rates rising more slowly, according
to projections published last week by the Fed.
Raising rates more aggressively, whether to head off the
risk of financial instability or unacceptably high inflation,
could dangerously depress already low inflation and derail a
recovery that is finally gaining steam, Evans said.
"If we go out and pound that message repeatedly, then it
gets every economy a chance to get their own house in order and
deal with their own financial situation and we will all grow
together," he said.
Last week, Fed Chair Janet Yellen roiled financial markets
by saying that after the Fed wraps up its bond-buying stimulus,
likely before the end of the year, rate rises could come around
six months later.
Evans acknowledged the possibility, though he downplayed it.
"In terms of timing, it certainly could be six months. I
think it will be at least six months," he told reporters,
according to MNI.
U.S. inflation has been stuck at around 1 percent since
early 2013, and Evans said that indicated the need to keep
"When we get up to 2 percent inflation, we will revert to
more normal monetary policy," Evans said.
Most Fed officials see inflation rising to between 1.5
percent and 2 percent by the fourth quarter of next year, and
most expect the Fed's first rate hike to come by then.
Evans' outlook for rates differs starkly from St. Louis Fed
President James Bullard, who spoke at the conference earlier
Bullard told Reuters he expected the Fed to start increasing
rates in the first quarter of next year, and lift them to 4
percent to 4.25 percent by the end of 2016.
Most other Fed policymakers see rates rising no higher than
3 percent by the end of 2016. The U.S. central bank publishes
the views of its policymakers on the appropriate rate path, but
does not identify who is making each individual projection.
Markets have proved sensitive to those projections, with
traders moving forward their expectations for a first Fed rate
hike after last week's release showed some officials believed
monetary policy should be tightened slightly more aggressively
than they had felt in December.
Traders of short-term U.S. rate futures are currently are
making nearly even odds of a first Fed rate hike in April 2015,
with better-than-even chance of a rate hike in June 2015.
(Additional reporting by Ann Saphir; Editing by Ken Wills, John
Mair and Sophie Hares)