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Federal Reserve Bank of Chicago President Charles Evans said Tuesday that aggressive central bank rate rises are needed to get inflation back under control.
“Inflation is clearly much too high and monetary policy must be repositioned to address this,” Evans said in a speech in New York.
While there is a lot of uncertainty on how the process will play out, Evans said, “I favor a front-loaded adjustment in the fed-funds rate toward the neutral range.” He added, “I think front-loading is important to speed up the necessary tightening of financial conditions, as well as for demonstrating our commitment to restrain inflation, thus helping to keep inflationary expectations in check.”
Evans told reporters after his remarks that in terms of the pace of monetary policy tightening, he sees big moves that moderate into smaller ones as the year moves toward its close. “I’m expecting that before December, we will have completed in any 50s and have put in place at least a few 25s,” he said in reference to the basis-point size of those prospective actions.
Evans said he estimates that the neutral federal-funds rate is likely between 2.25% to 2.5%, relative to the current federal-funds rate range of between 0.75% and 1%. “With the current degree of inflationary pressures, I could see the need to take policy somewhat beyond neutral to achieve our price stability mandate,” Evans said.
An expanded version of this report appears on WSJ.com.
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