(Bloomberg) -- Federal Reserve Bank of Chicago President Charles Evans said his interest-rate outlook matches the median estimate of his colleagues for six more quarter-point increases this year amid high inflation and a hot labor market.
“My own baseline assessment is in line with the median projection, though given the great deal of uncertainty we face today, I am well aware that developments may transpire in a way that would cause me to alter my assessment,” Evans told the Prairie State College Foundation in Olympia Fields, Illinois on Friday.
Evans, who has been mostly dovish during his leadership of the Chicago Fed over more than a decade, said he agreed with the median forecast made by Federal Open Market Committee participants in March for rates to rise to 1.9% this year and 2.8% in 2023, which he said “represents a slightly restrictive policy stance.”
Fed officials raised their benchmark lending rate off zero last month with a quarter-point increase. Since then, several policy makers, including Richmond Fed's Thomas Barkin on Wednesday, have said they are open to hiking by a more aggressive half point at their May meeting. Chair Jerome Powell has said he would favor a bigger move if necessary to bring price pressures under control.
In a question-and-answer session with reporters following his speech, Evans said he didn't see half-point moves as necessary or especially helpful in the current environment. While Evans's forecast for quarter-point moves would lift rates to a neutral setting -- neither stimulating nor restricting growth -- by March 2023, doing a couple half-point moves would only move that forward a few months, he said.
“December versus March, is that a big risk?” Evans told reporters. “I don't see that as being a big risk. I don't have any reason to appreciate why the most recent March SEP dot chart has become stale all of a sudden. I think it is still quite reasonable,” he said. Evans was referring to the Fed's quarterly Summary of Economic Projections, which includes rate forecasts of each policy maker displayed as a dot plot, updated at the March 15-16 meeting.
“I think with that kind of timing, you get to neutral in my opinion in an adequately quick time frame,” he said. “And it gives us a chance to look at how inflation pressures and supply pressures might be easing.”
While the Fed misjudged the inflation outlook in the 1970s, Evans said the current surge in price pressures has been caused by both stimulus and supply-chain difficulties that have appeared far more suddenly.
He expects solid U.S. economic growth with unemployment falling to around 3.5%. Russia's invasion of Ukraine and the continuing Covid-19 pandemic pose upside risks for inflation and downside risks to growth, he said. Evans also stressed the need to make decisions on a meeting-by-meeting basis.
“Given all the uncertainty we face today, policy makers need to be cautious, humble, and nimble as we navigate the course ahead,” he said. “Monetary policy is not on a preset course: Each FOMC meeting's decision will be based on an assessment of economic and financial conditions at the time, as well as the risks to the outlook,” he said, referring to the rate-setting Federal Open Market Committee.
In remarks prepared prior to the release of Friday's employment report, Evans described the labor market as “downright tight” by many measures, with employers unable to find workers for jobs.
Evans told reporters the report showed “a pretty strong headline number” with an unemployment rate roughly in line with expectations. “I don't think it is indicative of overheating,” he said.
Inflation, which initially rose in a few sectors related to Covid-19 disruptions, has since broadened, he said.
“If monetary policy did not respond to these broader inflation pressures, we would see the expectation of continued high inflation become embedded in economic decisions, and we would have even harder work to do to rein it in,” he said. “So monetary policy must shift to removing accommodation in a timely fashion, which is what you've seen in the latest actions by and communications from the FOMC.”
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