Fed’s Evans says ‘timely’ interest rate hikes needed

By Anne Sapphire

(Reuters) – The Federal Reserve needs to raise interest rates this year and next to bring down high inflation before it becomes embedded in U.S. psychology and becomes even harder to stamp out, a said Chicago Fed President Charles Evans on Thursday.

“Monetary policy must move to removing accommodations in a timely manner,” Evans said in remarks prepared for delivery to the Detroit regional chamber, noting that the U.S. central bank’s interest rate hike last week was the “first of what seems like a lot” this year.

The U.S. economy is buoyant, labor markets are “downright tight” by some measures, and the rapid rise in inflation triggered by pandemic-related factors is now playing out broadly across the economy, Evans said.

“It’s a sign of more general aggregate demand pressure on current supply,” Evans said. “If monetary policy did not respond to these broader pressures, we would see higher inflation building into inflation expectations, and we would have even more work to do to contain it.”

Data released earlier on Thursday showed how tight the US labor market is, with the Labor Department reporting that new jobless claims fell last week to the lowest level since September 1969. During the previous week saw the total number of people continuing to collect unemployment benefits after their initial claim was the lowest since January 1970, when the labor force was half as large as it is today.

Fed policymakers as a group signaled last week that they plan to raise the benchmark overnight interest rate by the equivalent of seven quarter-percentage-point rate hikes this year. and three more times next year, a view Evans said Thursday he shares.

These actions, along with reductions in the Fed’s balance sheet, will help bring inflation closer to the central bank’s 2% target over the next few years, he said. Inflation by the Fed’s preferred measure is currently around 6%.

Much remains uncertain, Evans noted, particularly with the Ukraine crisis and the pandemic both posing unknown upside risks to inflation and downside risks to economic growth.

“Policymakers need to be cautious, humble and nimble as we navigate the way forward,” Evans said. “Monetary policy is not on a predefined path” but will be decided at each Fed meeting, taking into account economic data, financial conditions and risks.

(Reporting by Ann Saphir; Editing by Paul Simao)

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