“I think front-loading is important to accelerate the necessary tightening of financial conditions, as well as to demonstrate our commitment to containing inflation, thereby helping to keep inflationary expectations in check,” Evans told Money Marketeers New York, noting that inflation is “far too high”.
The Fed has raised interest rates by three-quarters of a percentage point since the start of the year, including a bigger-than-usual hike of half a point earlier this month, which brought short-term borrowing costs within a range of 0.75% 1%.
Fed Chairman Jerome Powell has signaled that at least two half-point rate hikes are coming. On Tuesday, he told the Wall Bourse Journal that the central bank will continue to “push” rate hikes until it sees inflation come down in a “clear and convincing way”, not hesitating to act more aggressively if it does not happen.
Rates will likely have to break above neutral, Evans told reporters, but pushing them that far makes him “nervous”, in part because it’s hard to know exactly when rates will start to bite into growth, and that other risks could suddenly appear.
So, rather than taking big steps in half-point leaps, Mr. Evans wants to go slower.
“I expect that in July, September, we will talk about this,” Evans told reporters after his speech. By December, he added, he expects “we will have completed all 50 (bps) hikes and implemented at least some 25 (bps) hikes.”
This slower pace would give the Fed time to check whether the nodes in the supply chain are loosening, and to assess the dynamics of inflation and the impact of higher borrowing costs on what has happened. called a “downright tight” labor market. Unemployment is 3.6% and job vacancies are at an all time high.
“If we need to, we will be well placed to react more aggressively if inflation conditions do not improve sufficiently or, alternatively, to reduce the expected adjustments if economic conditions soften in a way that threatens our employment mandate,” Mr. Evans said.
Prices for Fed policy rate futures reflect expectations of a 2.75% to 3% range in policy rates at year-end, and a rate hike in the 3% range 3, 25%.
Critics, including several former US central bankers, have recently warned that the Fed, by waiting too long to raise rates, has set the economy up for recession.
“Given the current strength of aggregate demand, the strong demand for workers and the improvements on the supply side that I expect, I believe that a slightly restrictive position will always be compatible with a growing economy,” said Mr. .Evans. (Reporting by Dan Burns; Writing by Ann Saphir; Editing by Richard Pullin)