(Bloomberg) - Charles Evans, the Federal Reserve Bank of Chicago president who has long been one of the U.S. central bank’s more dovish policy makers, said an accelerated pace of interest-rate increases to combat inflation is worth debating.
A half-percentage point increase in the Fed’s benchmark rate “is obviously worthy of consideration,” when Fed officials next meet to decide policy in May, Evans said Monday during an event in Detroit. “Perhaps it’s highly likely, even,” he said.
The central bank’s policy-setting Federal Open Market Committee typically raises the federal funds rate in quarter-point increments, as it did in March when it authorized the first hike since 2018. Since then, investors have increasingly taken to betting that the FOMC will elect to raise the funds rate in half-point increments amid growing concerns that high inflation could persist for longer.
The Chicago Fed chief, who doesn’t have a vote on FOMC decisions this year, said the central bank needs to navigate the funds rate to a “neutral setting,” which he believes to be in the 2.25-2.5% range. He added that he favored getting there by next March, but “if we accelerated that, so that we were there in December, that would be OK too.”
“If you want to get to neutral by December, that would probably require something like nine hikes this year, and you’re not going to get that if you just do 25 at each meeting,” Evans said. “So, I can certainly see the case.”
Fed officials in March signaled they expect to lift rates to 1.9% by the end of 2022 and 2.8% by the end of next year, according to their median forecast.
Since then, officials have said they are open to moving faster if needed to quell the hottest inflation in four decades, including by hiking by a half-point at their May 3-4 meeting.
Minutes of the Fed’s March meeting showed that many of them had favored going that big last month, but they opted for a more cautious quarter-point hike in light of Russia’s invasion of Ukraine and were open to raising rates by a half point at one or more meetings going forward.
While he said Fed policy needed to adjust to tackle the hottest inflation in 40 years, Evans was also wary of risks the economy faces including the peril of moving rates up too fast.
“We need to get to neutral, and I think we need to allow ourselves enough time so that more data accumulates,” so that policy makers can see better what they are going to be facing in 2023, he said.
Asked by reporters after his speech about the performance of the dollar, which has strengthened in recent months, Evans said this showed that investors understood where the central bank was heading.
“I would say where the dollar is at the moment is indicative of the fact that U.S. monetary policy is pivoting towards a more neutral setting, and we’re going to be doing that quicker than many of our counterparts,” he said. “But I haven’t seen anything that seems out of line relative to sort of my expectations of where monetary policy is going right now.”
By Matthew Boesler
