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Charles Evans, president of the Federal Reserve Bank of Chicago, said Tuesday he supports an initial burst of monetary policy tightening, then a more “measured” pace of rate hikes to give time to adjust for inflation and the impact of higher borrowing costs. on the job market.
“I think frontloading is important in accelerating the necessary tightening of financial conditions, as well as demonstrating our commitment to contain inflation, helping to contain inflation expectations,” Evans said in prepared comments. for delivery to New York University Money Marketers.
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Inflation, which is more than three times the Fed’s 2% target, is “far too high,” Evans said, and the Fed should raise its key rate “urgently” to a neutral range of about 2.25%- 2.5%.
Fed policymakers have started to do this. They raised rates earlier this month by a higher than usual half a percentage point, to a range of 0.75%-1%, and Fed Chair Jerome Powell signaled that at least two more such rate hikes would follow. The Fed also plans to begin trimming its balance sheet by $9 trillion next month.
But Evans’ preference for moving to a more “measured pace” — a phrase that has led to quarter-point rate hikes in the past — sounded a little softer than Fed Chair Jerome Powell, speaking earlier in the day.
The central bank, Powell told the Wall Street Journal on Tuesday, will continue to “push” rate hikes until it sees inflation fall in a “clear and convincing way” and won’t hesitate to act more aggressively if it doesn’t.
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Evans said slowing the pace of rate hikes after an initial frontloading would give the Fed time to monitor if supply chain kinks are abating, as well as assess inflation dynamics and the impact of higher borrowing costs on what is becoming a “downright tight” labor market. mentioned, to evaluate .
Unemployment stands at 3.6% and the number of job openings is at an all-time high.
“If necessary, we are well positioned to respond more aggressively if inflation conditions do not improve sufficiently or, alternatively, scale back planned adjustments if economic conditions weaken in a way that threatens our employment mandate,” Evans said.
With inflationary pressures so broad and strong, he said, interest rates may need to rise “slightly” above neutral to lower inflation.
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Traders are betting on that, with prices in futures contracts pegged to the Fed’s key rate, reflecting expectations for a year-end key rate range of 2.75%-3%.
But that doesn’t mean the Fed will eventually trigger a recession, Evans says, as critics, including several former US central bankers, have recently warned.
“Given the current strength of aggregate demand, strong demand for workers and the supply-side improvements I expect to come, I think a modestly restrictive stance will still be consistent with a growing economy,” Evans said. (Writing by Ann Saphir; editing by Sandra Maler)
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This post Fed’s Evans backs front-loaded rate hikes and then measured pace
was original published at “https://financialpost.com/pmn/business-pmn/feds-evans-backs-front-loaded-rate-hikes-then-measured-pace”