Fed’s Evans: High prices will persist for longer than I thought, but won’t be permanent

Chicago Fed President and FOMC member Charles Evans on Monday said that high prices in the US will persist for longer than he originally though, though will not be permanent, reported Reuters. The Fed has to reposition itself in its response, he said, noting that supply chain pressures are more intense than he had expected.

The Fed needs to reposition monetary policy much closer to neutral, Evans added, which he sees as around 2.25% to 2.5% (for the Federal Funds rate). Evans stated that he had thought the Fed would reach neutral by March 2023, but caveated that if the Fed arrives at neutral by this December that would be ok. In other words, Evans said he is ok with the Fed pressing ahead with a further 200 bps of tightening in 2022.

Evans added that by the end of the year, the Fed will know a lot more about how persistent inflation is going to be and, hopefully, it will be receding. Moreover, by the end of the year, the Fed will be able to make choices about more or less restrictive policy, he commented.

Evans noted that not going too far too quickly is important for optionality going forward. Nonetheless, 50 bps rates hikes at coming meetings are worthy of consideration, he said, and are possibly even highly likely. The real discussion for Evans, he said, is where you want rates to be positioned by the end of the year.

“I don’t at the moment expect to see the need for restrictive policy to rein in inflation,” he noted, adding that there remains a risk.