Charles Evans, president of the Federal Reserve Bank of Chicago, said on Tuesday that he supported the initial outburst of monetary tightening and then supported a more “measured” pace of rate hikes to assess the impact of inflation and higher borrowing costs on the job market.
“I think front-loading is important to accelerate the necessary tightening of the financial situation, as well as to demonstrate our commitment to controlling inflation, thus helping to keep inflation expectations under control,” Evans said in a prepared note for distribution to money marketers. New York University.
Inflation is more than three times the Fed’s 2% target, Evans said, and the Fed should raise its policy rate “rapidly” to a neutral range of about 2.25% -2.5%.
Fed policymakers have begun to do so. They raised rates in the range of 0.75% -1% by a larger-half-percentage point than usual earlier this month, and Fed Chair Jerome Powell indicated at least two more such rate increases. The Fed plans to begin cutting its $ 9 trillion balance sheet next month.
But Evans’ choice to convert to a more “measured speed” – a phrase that in the past refers to quarter-point rate hikes – sounds a little more worrying than Fed Chair Jerome Powell said earlier in the day.
The central bank, Powell, told the Wall Street Journal on Tuesday that it would continue to “push” on rate hikes until inflation came down in a “clear and credible way” and would not hesitate to move more aggressively until it did.
Evans said slowing growth after initial front-loading would give the Fed time to examine whether the supply chain is shrinking and to assess the impact of higher borrowing costs on inflation dynamics and the “direct tightening” labor market. .
Unemployment is at a record high of 3.6% and job openings.
“If we need to, we would be in a better position to respond more aggressively if the inflation situation does not improve enough, or, alternatively, to scale up planned adjustments if the economic situation softens in a way that threatens our employment order,” Evans said.
As wide and strong as inflationary pressures are, he said, interest rates need to be raised “slightly” from neutral to reduce inflation.
Traders are betting that the futures contract price is tied to the Fed’s policy rate, which reflects expectations of a year-end policy rate range of 2.75% -3%.
But in Evans’s view, that doesn’t mean the Fed will start a recession, as critics, including several former U.S. central bankers, have recently warned.
“Given the current strength of aggregate demand, strong demand for workers, and I expect supply-side improvements, a moderately limited position will still be consistent with a growing economy,” Evans said. (Written by Ann Sapphire; Edited by Sandra Mailer)