Fed's Evans: Good reason to think economy will do very well even as rates rise
Chicago Fed President Charles Evans on Tuesday said that there is good reason to think the US economy will do very well even as rates rise, reported Reuters. The Fed needs to be mindful of a possible wage-price spiral, he added, noting that Fed needs to monitor for this.
Additional Takeaways:
- Looking at the composition of inflation, the Fed can take note of some "positive" developments if they continue.
- It's still too early to think the inflation challenges we are facing now are changing, but they could be.
- If the Fed were to do a couple of 50 bps increases, it could get interest rates to the 2.25%-2.5% neutral rate by end of the year.
- If the Fed doesn't see inflation coming down, it is going to raise rates above neutral.
- If the Fed does see inflation coming down, then neutral rates could be about right.
- If inflation reaccelerated, that would be a cause of great concern.
- "My expectation is that we'll need to raise rates above neutral."
Evan's remarks come after St Louis Fed President James Bullard reiterated calls for interest rates to hit 3.5% by the year's end and called inflation "far too high". Bullard also hinted he was open to a 75 bps rate move. His remarks have been attributed as adding fresh impetus to the ongoing global bond sell-off that saw US 30-year yields hit 3.0% for the first time since April 2019 on Tuesday.
Author
Joel Frank
Independent Analyst
Joel Frank is an economics graduate from the University of Birmingham and has worked as a full-time financial market analyst since 2018, specialising in the coverage of how developments in the global economy impact financial asset
