Fed's Evans sees period of rising U.S. interest rates ahead

By Ann Saphir

CHICAGO (Reuters) - Citing rising 10-year U.S. Treasury yields and his forecast for about 2.25 percent economic growth next year, Chicago Federal Reserve President Charles Evans said on Monday he expects interest rate hikes to continue to rise as the economy improves.

"We are on the cusp of a period of rising interest rates," Evans told reporters after a speech in Chicago.

The yield on the benchmark 10-year Treasury note, which has risen to about 2.4 percent from below 2 percent before President-elect Donald Trump's surprise Nov. 8 victory, suggests markets are pricing in somewhat higher U.S. inflation, Evans said.

Evans has long been concerned that inflation, running at about 1.7 percent, is too low. He noted on Monday that while the U.S. labor market is "kind of tight," wage growth is weak.

Still, Evans is optimistic that conditions are ripe for inflation to rise back to the Fed's 2 percent target, especially given the policies that the incoming Trump administration has "earmarked" for the next few years. Trump has said he plans to cut taxes and improve U.S. bridges, roads and tunnels.

"An infrastructure plan would be terrific, that would be good," Evans said. "I think corporate tax rationalization would be a huge improvement."

Speaking to reporters later, Evans suggested he is not advocating a huge government infrastructure spending bill, saying, "you don't need explicit stimulus" with the jobless rate already so low.

He declined to comment on whether he was worried that any of Trump's plans could damage the economy, saying he was still learning about the new administration's policies and would be patient in assessing them. Some economists have said they fear Trump's anti-trade rhetoric could lead to policies that hurt growth.

The Fed is widely expected to raise rates at its policy meeting next week, and attention is now focused on how fast it will increase them next year as Trump begins to put his new policies in place.

The Republican businessman has said his policies would lift annual economic growth to 3 percent or 4 percent, or even more.

Evans, who rotates into a voting spot on the Fed's policy-setting panel next year, said that though it is possible to boost growth temporarily, keeping it there would be difficult without expanding the U.S. labor force or boosting productivity.

Otherwise, Evans said, it would be a challenge to boost the sustainable U.S. economic growth rate, which is currently about 1.75 percent.

(Reporting by Ann Saphir; Editing by Meredith Mazzilli and Paul Simao)