The U.S. central bank will probably raise interest rates above levels it considers neutral for the economy next year given the outlook for inflation, Federal Reserve Bank of Chicago President Charles Evans said.
“Probably we are going beyond neutral,” Evans said Tuesday during a moderated discussion at an Economic Club of New York event.
“That’s my expectation, when I see that, taking out special factors, I’m still left with 3 to 3.5% inflation” by the end of 2022, he said. “That’s not what we want. If we’re at a 2.5% inflation rate, I think we have more things to ponder there.”
The Chicago Fed chief’s comments highlight how closely U.S. central bankers are keeping an eye on inflation data as they chart a course for interest rates after consumer prices rose 8.5% in the 12 months through March, which marked the fastest inflation rate in any one-year period since 1981.
Fed officials raised their benchmark rate by a quarter-percentage point last month after keeping it pinned near zero for the previous two years to help the U.S. economy recover from the impact of the pandemic. Now, they are signaling a relatively-rapid pace of rate increases over the rest of the year to get their benchmark rate to what they deem to be a “neutral” level of 2.25-2.5%, and are increasingly suggesting they may have to go even higher.
“By December, we’re going to get more data on the micro aspects of the high inflation, price increases, how much is it broadening out,” Evans said. “By that time, we’re at neutral, and to the extent we don’t see it coming down, we’re going beyond neutral, absolutely.”
