Chicago Federal Reserve Bank President Charles Evans on Wednesday has signalled he is with the core group at the Fed calling for continued rapid rate hikes to battle 40-year high inflation, noting "downside" risks.

"I expect it will be necessary to bring rates up a good deal more over the coming months in order to return inflation to the Committee’s 2 percent average inflation target," Evans said in remarks prepared for delivery in Cedar Rapids for the Corridor Business Journal's mid-year economic review.

"We must be watchful and ready to adjust our policy stance if changes in economic circumstances dictate," Evans said. 

Key quotes

Will need to raise interest rates 'a good deal more' over the coming months.

Many risks to the downside, much be watchful and ready to adjust policy stance.

Inflation is clearly much too high.

Bad news on inflation was an important consideration in my own support for a 75-bps hike in June.

Own viewpoint is roughly in line with expectations for a policy rate of 3.25%-3.5% at year-end, 3.8% by end-2023.

Rates are not on a preset course, the Fed will respond to data.

Less accommodative monetary policy will dampen very high labour demand.

Inflation will cool substantially over the next couple of years.

The labour market is downright tight.

Tighter monetary policy plays a very important role in my forecast of lower inflation.

Update:

Evans later signaled he'd likely back another big interest rate hike in July unless inflation data improves, and nodded to the risk of a downturn because the Fed cannot "fine-tune" the economy's response to rising borrowing costs.

"I would think that, you know, 75 (basis points) is a very reasonable place to have a discussion." 

"I think 75 would be in line with continued strong concerns that the inflation data isn't coming down as quickly as we thought."

US dollar update

Despite the persistent message from Fed members that there is a  ''need to raise interest rates 'a good deal more' over the coming months,'' the US dollar has been on the back foot, breaking the short-term structure and the trend from 101.297:

Major US stock indexes rose on Wednesday after Federal Reserve Chair Jerome Powell said the US central bank is "strongly committed" to bringing down inflation, while benchmark Treasury yields eased, leaving the IUIS dollar hung out to dry. The DXY index is down some 0.3% at the time of writing. 

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