Fed's Evans: A stronger economy would make real rates go up

 Chicago Federal Reserve President Charles Evans has stated that the Fed could lengthen the maturity of bond buying if needed and argued that the financial markets are pricing in a more positive outlook.

Since December, his outlook has strengthened and said that a stronger economy would make real rates go up.

Earlier, he said that he is “optimistic” about the economic outlook and does not expect to need to further ease Fed policy as long as Congress passes further fiscal relief.

“At the moment I think the rebound that we’re expecting is really quite a strong one,” Evans told the CFA Society Chicago. If the economy were to need more of a boost, the Fed, which is now buying $120 billion in bonds monthly, could shift to buying longer-duration bonds, he said.

Market implications

The market, on the other hand, questions whether higher prices and borrowing costs will lead to stronger than tolerable inflation.

In this context, all eyes will be on the Fed Chair's speech on Thursday.

In the last week of fedspeak before the March meeting, markets will want to see whether Powell addresses the steepening. If he does, this could add to fears of an early taper.