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Fed should be explicit in spelling out gradual pace of rate hikes: Evans

Chicago Federal Reserve President Charles Evans speaks at the Chicago Banking Symposium in Chicago, Illinois, United States, June 3, 2015. REUTERS/Jim Young

By Lindsay Dunsmuir

EAST LANSING, Mich. (Reuters) - The Federal Reserve should use the communication tools at its disposal at its December meeting to spell out a gradual pace of rate increases, Chicago Federal Reserve President Charles Evans said on Tuesday.

The Fed has held interest rates near zero for seven years but is widely expected to begin tightening monetary policy at its next meeting on Dec. 15-16.

Asked by reporters following remarks to a local business group in Michigan if the Fed should emphasize gradual rate increases in its December statement, economic projections or at Chair Janet Yellen's press conference after the December meeting, Evans said all would be helpful.

"We are going to have to talk, we are going to have to see how much we agree on that, details matter in terms of how you describe it," Evans said. "It depends on the chair and if that's an agreeable idea. I would expect her to talk about that at the press conference as well."

Earlier in prepared remarks, Evans hit a similar theme saying the Fed should "strongly and effectively" communicate a path of gradual rate rises as a way of keeping the U.S. economy on track.

Evans is one of a handful of policymakers who believe the Fed should not raise rates in December, but has recently used his comments to convey the importance of a gradual path once rates are initially raised.

There is debate among Fed policymakers on how quickly inflation will rise to the central bank's 2-percent target rate. Those that think it will happen soon argue that the Fed needs to raise rates more quickly to stave off potentially overshooting its inflation target.

The Chicago Fed president told reporters he did not think the United States is in a Japan-like situation and said that despite Tuesday's weak U.S. manufacturing reading, the fundamentals of the economy remain strong.

But he noted the Fed's lack of success in accurately forecasting some of the main economic indicators it looks at when deciding the strength of the U.S. economy in the near and medium-term.

"We have to admit that our certainty about a lot of things in the economy is not nearly as strong as we would like it to be," he said. "It's a limitation of how smart we are but also the challenge of assessing things that are just unknown."

(Reporting by Lindsay Dunsmuir; Editing by Chizu Nomiyama)