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Fed's Evans: Commodity Inflation Due To Global Growth

Published Tuesday, 8th March 2011 12:08 am - © 2011 Dow Jones

(Updates with additional details throughout.)

By Bob Tita


CHICAGO -(Dow Jones)- Rising prices for oil and other commodities are largely the result of the growing global economy and turmoil in the Middle East, rather than U.S. monetary policy to preserve low interest rates, a leading Fed policy maker said Monday.

Charles Evans, president of the Federal Reserve Bank of Chicago, acknowledged that soaring prices for oil and other commodities are a headwind for the U.S. economy. But he said the U.S. economy is "growing nicely" and isn't buckling under the strain of higher energy and food costs. As a result, he continued to back his earlier prediction that the U.S. economy will grow by 4% this year.

Evans said higher interest rates in the U.S. would likely have minimal effect on bringing down rising prices for commodities. He said the increases are largely the result of consumption outpacing production in an expanding global economy.

Evans added that oil prices will continue to be susceptible to civil unrest in Libya, Egypt and other countries in the Middle East because of the world's heavy reliance on the region for oil production.

"It's not surprising you're getting [price] volatility from that," said Evans during remarks on cable network CNBC.

Evans, a voting member of the Fed's rate-setting Federal Open Market Committee, maintained that overall core inflation in the U.S. remains tame when energy, food and a handful of other items are excluded.

"I think inflation is always not well understood and we focus on the price of things going up, but there are a lot of prices that are not rising quickly," he said. "There are many, many goods growing in the 1% to 2% range or less than that."

Evans noted that prices for automobiles, clothing and rent are showing little evidence of inflationary pressure.

The Fed's continuation of a program to buy $600 billion of Fed assets to stimulate borrowing and economic growth has come under increasing criticism as economists and business leaders urge it to initiate policies to tighten interest rates to head off inflation.

Evans, an enthusiastic supporter of the second round of the so-called quantitative easing program, said he is satisfied with the results of the program and doesn't anticipate it continuing beyond its scheduled end in June.

-By Bob Tita, Dow Jones Newswires; 312-750-4129;

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