According to Reuters, Chicago Federal Reserve head Charles Evans, one of the more hawkish Fed presidents, suggested that the US will likely have to lift rates above the neutral rate to keep inflation in check.
Key quotes
” “Given the outlook today, I believe this will entail moving policy first toward a neutral setting and then likely a bit beyond neutral,” Evans said in a speech originally intended to be delivered to a conference earlier this week in Argentina and released on Thursday. Evans does not have a vote on the central bank’s rate-setting committee this year but fully participates in deliberations.
The neutral rate is a level of interest that is seen as neither encouraging nor discouraging economic decisions, and is consistent with both stable inflation and strong employment.
Investors expect the Fed to raise its benchmark interest rate by a quarter percentage point to a target range of between 2 and 2.25 percent at its next policy meeting on Sept. 25-26 and see another rate rise in December.
In the prepared remarks, Evans said the central bank would have to tighten more quickly should inflation move “unacceptably” higher than the Fed’s symmetric 2 percent objective. Inflation has hit that Fed target in recent months after more than six years of undershooting.
Conversely, should uncertainty over trade caused by the Trump administration’s policies continue or there is a stalling of inflation expectations the Fed would need to raise rates more slowly, Evans said.
The central bank has already raised rates twice this year and seven times in total since it began a tightening cycle in late 2015.
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