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Fed's Evans wants smaller U.S. rate hikes by July or Sept

Economy May 17, 2022 10:05PM ET
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© Reuters. FILE PHOTO: Chicago Federal Reserve Bank President Charles Evans looks on during the Global Interdependence Center Members Delegation Event in Mexico City, Mexico, February 27, 2020. REUTERS/Edgard Garrido

By Dan Burns

(Reuters) -Chicago Federal Reserve Bank President Charles Evans on Tuesday said he supports moving to a shallower rate-hike path by July or September to allow the Fed time to assess inflation and the job market as it pushes borrowing costs up to neutral, and likely beyond.

"I think front-loading is important to speed up the necessary tightening of financial conditions, as well as for demonstrating our commitment to restrain inflation, thus helping to keep inflationary expectations in check," Evans told the Money Marketeers in New York, noting that inflation is "much too high."

The Fed has raised interest rates by three-quarters of a percentage point so far this year, including a bigger-than-usual half-point hike earlier this month that lifted short-term borrowing costs to a range of 0.75%-1%.

Fed Chair Jerome Powell has signaled at least two half-point rate hikes are ahead. On Tuesday he told the Wall Street Journal that the central bank will keep "pushing" on rate hikes until it sees inflation move down in a "clear and convincing way," not hesitating to move more aggressively if that does not happen.

Rates will likely need to go above neutral, Evans told reporters, but pushing them there makes him "nervous," in part because it's difficult to know exactly when rates will start to bite into growth, and other risks could suddenly emerge.

So rather than barreling ahead at half-point jumps, Evans wants to go more slowly.

"I do expect that July, September, we'll be talking about that," Evans told reporters after his address. By December, he said, he expects "we will have completed any 50 (basis point hikes) and have put in place at least a few 25 (basis point hikes)."

That slower pace would give the Fed time to check if supply chain kinks ease, and to evaluate inflation dynamics and the impact of higher borrowing costs on what he called a "downright tight" labor market. Unemployment is at 3.6% and job openings are at a record high.

"If we need to, we will be well positioned to respond more aggressively if inflation conditions do not improve sufficiently or, alternatively, to scale back planned adjustments if economic conditions soften in a way that threatens our employment mandate," Evans said.

Prices in futures contracts tied to the Fed's policy rate reflect expectations for an end-of-year policy rate range of 2.75%-3%, and for rate hikes to top out in the 3%-3.25% range.

Critics including several former U.S. central bankers have recently warned that the Fed, by waiting too long to raise rates, has set up the economy for a recession.

"Given the current strength in aggregate demand, strong demand for workers, and the supply-side improvements that I expect to be coming, I believe a modestly restrictive stance will still be consistent with a growing economy," Evans said.

Fed's Evans wants smaller U.S. rate hikes by July or Sept
 

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Comments (5)
Junk Man
Junk_Man May 17, 2022 10:55PM ET
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FED is going to pump and dump
Tom Saltzman
Tom Saltzman May 17, 2022 10:19PM ET
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Stagflation full ahead.
peter neal
peter neal May 17, 2022 9:12PM ET
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They all will abandon inflation and ****the consumer and the economy to let the equity markets remain high for as long as they can because they work for wall street. But things will crash and we shall be in a depression in 9 months. Good 🤞. They are so far beyond having no credibility they should all be exposed and locked up.
Jose Cabreja
Jose Cabreja May 17, 2022 9:12PM ET
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WS works for that FED..they all do.
Patryk Sl
Patryk Sl May 17, 2022 9:12PM ET
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Wow, nice future telling skills there!
Benjamin USA
Benjamin USA May 17, 2022 7:07PM ET
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They will trigger rate shock, same as every time before it
Andrew Allen
Andrew Allen May 17, 2022 7:07PM ET
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good
Milan Fofaria
Milan Fofaria May 17, 2022 6:57PM ET
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Let the party begin ...!!!!
 
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