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[NEW YORK] When the Federal Reserve next raises interest rates it should be more explicit about how policy makers will respond to new information about the economy going forward, said Federal Reserve Bank of Chicago President Charles Evans.
"I think the most important part of our communications is really around not when is the next increase, but what are the terms of the subsequent increases going to be," Mr Evans said Monday while answering questions from reporters after a speech in Chicago.
The US central bank's policy setting Federal Open Market Committee, on which Mr Evans will hold a vote next year, is gearing up for a second interest-rate increase after a hike in December that marked the first in nearly a decade.
Investors see better-than-even odds of a hike before the end of the year, according to pricing in federal funds futures contracts.
Mr Evans said if the economy continues to grow in line with his forecast, it may be appropriate to raise rates three times by the end of 2017, but revamping communications with the public would allow for a more flexible approach in case those forecasts don't pan out, especially given the downside risks he sees clouding the outlook for inflation.
"With that type of messaging, we might be well served by not so many increases," Mr Evans said.
"It would depend on whether or not we are making that kind of progress."
His estimate for the appropriate pace of rate increases through next year puts him in line with the median quarterly estimate submitted in September by the 17 officials of the FOMC, displayed in a so-called dot plot.
The Chicago Fed chief was upbeat about the prospects for continued hiring, adding that he saw more room for the US jobs market to run than some of his colleagues on the FOMC. Over the next few years, the unemployment rate could fall as low as 4.5 per cent without triggering undue inflation, he said.
"The unemployment rate right now is 5 per cent, so there is still some slack measured that way," he said.
"I think that there is room for the economy to continue to grow before we see inflation really pick up."