Fed’s Evans says higher interest rates needed to curb soaring US inflation
The president of the Chicago Federal Reserve said the central bank was close to approving a series of interest rate hikes, but he said high US inflation should remain above 3% until the end of the year.
Saying it is “crucial” to fight inflation, Chicago Fed Chairman Charles Evans signaled on Wednesday that the Fed is ready to raise its benchmark short-term rate in March and at subsequent meetings. . The rate is now close to zero.
“We’re going to start early at the next meeting, several next meetings, of course,” Evans told The Rotary Club of Lake Forest-Lake Bluff Foundation in Chicago.
He also said the central bank would soon begin to reduce its balance sheet by $9 trillion. The Fed bought trillions of bonds during the pandemic to cut long-term interest rates and further stimulate business investment and consumer spending.
“We will want to start reducing the size of our balance sheet. It’s very big,” Evans said.
The pace of inflation in the United States hit a 40-year high of 7.5% in the 12 months to January, according to the consumer price index. The Fed’s favorite PCE inflation gauge rose at a somewhat slower pace of 6.1% over the same period.
While Evans predicted the inflation rate would likely return to near the Fed’s 2% target by 2024, he said it would likely be around 3% and 3.5% from by the end of this year.
Fed Chairman Jerome Powell indicated in congressional testimony on Wednesday that the central bank was on track to raise rates at its March 16 meeting. The increase would be the first in four years.
The Fed cut its benchmark rate to near zero at the start of the pandemic.
Evans is not a voting member of the Fed’s interest rate-setting committee this year.