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Fed's Evans: Rates Need to Stay Above 4.5% for 'Some Time'

Published Oct 10, 2022 09:28AM ET Updated Oct 10, 2022 09:38AM ET
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© Reuters.

By Geoffrey Smith

Investing.com -- The Federal Reserve will have to raise interest rates a little above 4.5% and keep them there for some time to bring inflation down, a senior policymaker warned on Monday.

"I see the nominal funds rate rising to a bit above 4.5% early next year and then remaining at this level for some time while we assess how our policy adjustments are affecting the economy," Chicago Fed President Charles Evans said in a speech, the text of which was released online.

Evans said this would represent a real - that is, inflation-adjusted - rate of around 2% when benchmarked against inflation expectations, and a significant brake on the economy as a result.

He defended the Fed's succession of big interest rate hikes in recent months, which he said were necessary to bring real rates out of negative territory at a time when inflation is running at its highest in 40 years.

However, he also warned of the risk that the Fed may tighten too far.

"Overshooting is costly, too, and there is great uncertainty about how restrictive policy must actually become," Evans said. "This puts a premium on the strategy of getting to a place where policy can plan to rest and evaluate data and developments."

Evans' comments are among the first from a Federal Reserve official to comment directly on September's U.S. jobs report, which showed payrolls still expanding at a historically decent rate, and otherwise showed the labor market remaining tight, as months of broad gains in earnings fail to have much impact in luring people back into the workforce.

The jobs report showed the participation rate - which measured the overall share of the working-age population actually in paid work - as having fallen to 62.3% in September from 62.4% in August.

"I've become less optimistic that this channel will provide much relief from labor market pressures," Evans said. "Indeed, the labor force participation rate currently does not appear far from its long-term trend."

Evans echoed the judgment of his central bank colleagues in saying that the Fed's policy tightening, which has already had a clear impact on the housing market, will not lead to a steep rise in unemployment. He pointed to the Fed's projections of the jobless rate reaching 4.4% by next year from 3.5% in September, saying that: "While this does represent a noticeably softer labor market when compared with today’s, these certainly are not recession-like numbers."

Fed's Evans: Rates Need to Stay Above 4.5% for 'Some Time'
 

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Comments (9)
Fred Berdach
Fred Berdach Oct 10, 2022 2:00PM ET
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How can you tame inflation with negative interest rates? The FED’s 4,5% target vs some 8% inflation rate ?
Jaime Gomez
Jaime Gomez Oct 10, 2022 11:01AM ET
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Mr. Evans and the others have the best job of making millions and millions from just speaking, what a way to drive the markets.
David Beckham
David Beckham Oct 10, 2022 10:59AM ET
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Nice fed nuclear war energy crisis rate hike aggressively nice biden
Bagja Selamet
Bagja Selamet Oct 10, 2022 10:57AM ET
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its mean, buy only
승민 양
승민 양 Oct 10, 2022 10:56AM ET
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He maybe want market to go dead.
Oct 10, 2022 10:44AM ET
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bullish signal
Ben Bigs
Ben Bigs Oct 10, 2022 10:37AM ET
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Armageddon!
WILLIAM HAGERTY
WILLIAM HAGERTY Oct 10, 2022 10:16AM ET
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he doesn't know!
Symmetries Research
SymResearch Oct 10, 2022 9:57AM ET
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Useless, failed ideas.
 
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