Fed's Charles Evans says good time to pause and be cautious

Chicago Federal Reserve Bank President Charles Evans said on Monday that it is a good time for the U.S. central bank to pause and adopt a cautious stance, adding he did not expect any interest rate hikes until the second half of next year.

The comments, made at the Credit Suisse Asian Investment Conference in Hong Kong, were among the first by policymakers following the Fed's decision last Wednesday to signal an end to its tightening after it abandoned plans for further rate hikes in 2019.

Softening his tone from a few months ago, Evans, who votes on interest rate policy this year, said monetary policy was neither accommodative, nor restrictive at this point.

In January, he said the Fed could hike interest rates three times in 2019 assuming the U.S. economy remains reasonably strong.

Last week the U.S. central bank left rates steady in a range of 2.25 percent to 2.5 percent. Fresh forecasts showed 11 of 17 Fed policymakers expected no rate change for the rest of the year, up from just two in December.

That unexpectedly dovish signal had financial markets quickly pricing in a rate cut next year.

In what many see as a bad omen for the U.S. economy, yields on benchmark U.S. 10-year treasury notes fell further below three-month rates in Asia on Monday, an inversion that has in the past signaled the risk of economic recession.

The yield curve inverted on Friday for the first time since mid-2007.

Evans described the inversion as "pretty narrow."

"We have to take into account that there's been a secular decline in long term interest rates," Evans said.

"Some of this is structural, having to do with lower trend growth, lower real interest rates," he said. "I think, in that environment, it's probably more natural that yield curves are somewhat flatter than they have been historically."