US interest rates to stay low for longer - Chicago Fed boss

Federal Reserve Chair Janet Yellen, centre, and Federal Reserve Bank of Chicago President and CEO Charles Evans. Photo / Getty

Chicago Federal Reserve President Charles Evans has hinted that an interest rate hike from the US central bank could soon be on the way but rates are likely to remain low for "some time".

Addressing a CFA Society lunch event in Auckland today, Evans said he was expecting "sound" growth in the US economy and further improvements in the jobs market.

The Fed raised its target range for federal funds to 0.25 per cent to 0.5 per cent in December 2015 - its first hike since 2008 - but has refrained from further increases since then.

After his speech, Evans told reporters that he "would be fine" with the Fed raising rates once this year, most likely in December.

"I have a forecast where [the economy] is going to continue to improve so on that basis of that I do think there will be a rate increase," he said.

Low rates have been contributing to a bull run in equity markets and investors have been on edge over when the next Fed hike may take place.

Traders are currently pricing a 63 per cent chance of the central bank raising rates in December, according to Reuters.

Evans said that after a weak first half of 2016 he expected real GDP growth in the US to improve in the second half and to average just over 2 per cent over the next three years.

US consumers were the "linchpin" of his forecast.

"The most important factor supporting household spending is the substantially improved labour market in the US," he said.

"Over the past two years, the unemployment rate has fallen below 5 per cent - half its 2009 peak - and job growth has averaged around 220,000 per month. These gains have raised incomes and buoyed confidence over future job prospects."

But despite an improving economic situation, Evans said he expected inflation to remain stubbornly low in the US.

"Inflation is too low, has been too low for too long, and I don't expect a quick and easy return to our 2 per cent target," he said.

Evans said it was important to put his economic outlook in a "longer-run context".

"It is my view that we will be in a low-growth, low interest rate environment for some time," he said.

"Looking ahead, I see there is a distinct possibility that there has been a reduction in the long-run trend in economic growth."

Evans said policymakers faced many challenges in judging long-term growth prospects and appropriate path for monetary policy.

"I see good arguments that we are in for a protracted period of low equilibrium real interest rates," he said.

"In such an environment, it is all the more critical that we demonstrate our commitment to a symmetric inflation target with our policy actions and our policy communications."