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Fed’s Evans Refrains From Signaling Backing for Half-Point Hikes

© Bloomberg. Charles Evans Photographer: Justin Chin/Bloomberg

(Bloomberg) — Federal Reserve Bank of Chicago President Charles Evans refrained from any signal that he wants to raise interest rates by half a percentage point, after some of his colleagues specified that readiness in recent days.

“My own viewpoint is in line with the median assessment” of Fed officials’ projections released earlier this month, Evans said in a prepared remarks Thursday to the Detroit Regional Chamber. He noted that the median call was for seven quarter-point moves for all of 2022, with the policy rate moving up to 2.75% to 3% by the end of next year.

Evans is not a voting member of the policy-setting Federal Open Market Committee this year.

Investors have boosted bets on a half-point move at the FOMC’s May 3-4 meeting, after Chair Jerome Powell said Monday that the central bank was prepared to take such a step if necessary to control the hottest price pressures in four decades.

“Policymakers need to be cautious, humble, and nimble as we navigate the course ahead,” Evans said Thursday. “Monetary policy is not on a preset course.”

Not 1980s

Fed officials raised rates by a quarter point last week for the first increase since 2018, bringing the benchmark to a range of 0.25% to 0.5%.

Evans drew a distinction between the high inflation of the 1980s and that of today. While “overly accommodative monetary policy” in the 1960s and 1970s contributed to a buildup of long-term inflation expectations, the current surge in prices “largely reflects real supply shocks and weakened supply chains and logistics in the face of strong, outsized demand for goods and diminished labor force participation.”

“A shift in demand back toward services, an increase in supply in response to higher relative prices and wages, and adjustments in business models to adapt to the evolving environment will eventually alleviate many of the supply-side pressures we face today,” the Chicago Fed chief said.

Even so, the Fed needs to act, Evans said: “If monetary policy did not respond to these broader pressures, we would see higher inflation become embedded in inflation expectations, and we would have even harder work to do to rein it in.”

©2022 Bloomberg L.P.

Fed’s Evans Refrains From Signaling Backing for Half-Point Hikes

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