Evans urges caution on rates as buffer for U.S. economy

NEW YORK (Reuters) - A "very shallow" series of interest rate hikes over the next few years is appropriate to buffer the U.S. economy from outside shocks and the risk of inflation slipping too low, a top Federal Reserve official said on Wednesday.

Chicago Fed President Charles Evans, who has been pushing for only two rate hikes this year, repeated that risks to the economy are tilted to the downside.

"We should buy some insurance against unexpected weakness by accepting a somewhat higher likelihood of stronger outcomes," Evans told the Forecasters Club of New York.

"This means being more accommodative than usual to provide an extra boost to aggregate demand as a buffer against possible future downside shocks that might otherwise drive us back to the effective lower bound."

After having lifted rates from near zero in December, the Fed left policy unchanged earlier this month, citing overseas risks and an early-year global market selloff.

Given recent strength in U.S. price readings, Evans said he raised his inflation forecast for this year to 1.6 percent - though he still expects it to take up to three years to hit the Fed's 2-percent target.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)

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