(Adds details from speech on growth outlook, inflation)
CHICAGO May 13 The U.S. economy will remain
sluggish in the months ahead, but "accommodative" interest
rates will help it pick up later this year and in 2009, Chicago
Federal Reserve Bank President Charles Evans said on Tuesday.
Evans, in remarks for delivery at the annual Chicago
reception of finance group ACCION, said tight credit conditions
and the ongoing housing slump would continue to restrict
consumer spending "for some time" and hold the economy to a
"relatively sluggish" pace of expansion.
But "even given the financial turmoil, the stance of
monetary policy is accommodative and supportive of growth," he
said, adding he expects growth to improve in the second half of
the year and return to near potential in 2009.
The United States grew at a slight 0.6 percent rate in the
first three months of this year, matching its performance in
the fourth quarter of 2007.
To boost the economy, the Fed embarked on an aggressive
easing campaign last September, when its benchmark interest
rate stood at 5.25 percent. The last reduction in April took
the rate down to 2 percent, its lowest level since late 2004.
Evans warned that it would take time for credit conditions
to ease and for the Fed's 325 basis points of interest rate
cuts to influence economic activity.
"As a result, the level of uncertainty regarding future
developments continues to be high and the path forward may be
uneven," he said. "We must keep this in mind as we evaluate the
A copy of his remarks was made available in advance of his
INFLATION TO EASE, BUT UPSIDE RISKS REMAIN
Core inflation, which removes food and energy costs, is
likely to ease to a 1.5 percent to 2 percent range by 2010,
Earlier on Tuesday, some of his colleagues voiced growing
concerns about inflation, perhaps signaling that the Fed will
refrain from cutting its target federal funds rate again in the
San Francisco Fed President Janet Yellen said in a separate
speech on Tuesday that interest rates would have to be raised
in a timely manner as growth recovers.
While Evans said he expects high energy and other commodity
prices to stabilize over the medium term, he added that "any
increase in inflation expectations would pose an important risk
to the achievement of price stability."
Oil has set a series of record highs in recent weeks, last
trading above $125 a barrel. That has made life difficult for
the Fed, which must somehow manage to prevent the economy from
falling into a recession at a time of rising global prices.
Some economists have worried that a steady slide in the
value of the dollar could worsen the inflation outlook.
But Evans noted that the weak dollar, down about 20 percent
against a basket of major currencies since 2006, has boosted
U.S. exports, making it "one bright spot" for the struggling
Evans is not a voting member of the policy-setting Federal
Open Market Committee in 2008.
(Reporting by Steven C. Johnson and Karen Pierog; Editing by