Evans (Fed): Limit rate hikes as inflation eases

Today’s report on the path of US inflation is the first “positive” development since the Fed began its policy tightening, Chicago Fed chief Charles Evans said today.

The Fed member even now sees that the bank will limit the rate at which it raises its interest rates.

In particular, as Mr Evans said speaking at an event at the University of Iowa, inflation continues to run “unacceptably” high and the Bank will have to raise its interest rates probably to the range of 3.25% to 3.5% within year.

With Bank rates currently in the 2.25% to 2.5% range, this means an additional 1% (100 basis points) hike at the next three meetings scheduled on the Fed’s calendar through 2022.

And if the market estimate is calculated, which now gives a 62.5% probability of an increase of 50 basis points (0.5%) in the next meeting in September, this will mean a large reduction in the rate of increases to 25 basis points (0, 25%) in each of the two remaining sessions.

Additionally, Charles Evans estimated that the Fed would then raise interest rates by the end of 2023 to between 3.75% and 4%, a further increase of just 50 basis points.

“We’ve been tightening monetary policy quite a bit and very quickly,” Mr Evans said. “I expect we will raise interest rates in the remainder of this year and next to ensure that inflation returns to our 2% target.”

“I feel like we’re now in a good position and we can shift to being more restrictive if inflation gets out of hand, more than I think it will, or the economy comes out stronger, which will mean inflationary pressures,” he added.

But as he said, “I don’t think that’s the point though. I don’t think the latest employment report shows that on its own, rather we need more evidence to say that.”