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Chicago Federal Reserve President Charles Evans said Thursday he expects the equivalent of six more 25 basis point increases in the central bank’s policy interest rate by the end of the year and three more next year.
Those increases would put the Fed funds rate in a range of 2.75% – 3% by the end of 2023.
“This is a bit over the median longer-run estimate of 2.4%, and so, it represents a slightly restrictive policy stance,” Evans said, in a speech to the Detroit Regional Chamber.
Last week, the Fed hiked rates by a quarter-percentage point to a range of 0.25%- 0.5%.
During the question-and-answer session, Evans said he was “comfortable” with just raising the Fed funds rate by a quarter-point at each meeting this year and into next March.
“I just think we want to be careful,” he said.
But he added he was “open-minded” on whether some of the moves should be 50 basis points.
Since last summer, inflation has broadened out to a wide range of goods and services, Evans said.
“This is a signal of more general pressure from aggregate demand on today’s impinged supply,” Evans said.
If the Fed did not respond, the public will come to expect higher inflation, and the Fed “would have even harder work to do to rein it in,” he said.
The Chicago Fed President said that the pick up of inflation won’t be permanent.
“There is a lot of reasons to believe these won’t be permanently higher prices, but it is taking a lot longer” than had been thought, he said.
In a subsequent roundtable with reporters, Evans said he supported starting to shrink the central bank’s $9 trillion balance sheet “relatively quickly” and the central bank can shed maturing assets “at a pretty brisk pace.”
“I believe that the markets are expecting this,” he said.
Earlier Thursday, Minneapolis Fed President Neel Kashkari said he also expected six more quarter-point hikes this year. He said it was a “constellation” of data that led to his shift from a dovish stance only six months ago.
“I’ve certainly shifted my views quite dramatically in the past six months,” Kashkari said at an event at the Fargo-Moorhead Chamber of Commerce, North Dakota.
“Everybody should know that 100% of the people on the Federal Open Market Committee are committed to getting us back to our 2% inflation target,” Kashkari added.
“Inflation is very hot right now. It is a big surprise. At least for me,” he said.
U.S. stocks
DJIA,
SPX,
opened higher on Thursday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
rose to 2.362%.
