The Fed: Fed’s Evans sees tide of inflation turning this year

The high rate of U.S. inflation will cool to around a 2.5% rate by the end of the year, said Chicago Fed President Charles Evans on Thursday.

“I expect that the tide of inflation will turn,” he said.  

“It will be coming down. I think its more likely to be 2.5% as measured by the personal consumption expenditure index,” Evans said, in a discussion about the outlook sponsored by the Milwaukee Business Journal.

Evans said he was caught off guard by the surge of inflation and said Fed policy is not well positioned to combat it. He said the central bank will spend the year moving away from its easy money policy stance toward a more neutral stance. “It takes us time to change our setting,” he added.

“I readily admit – I have to be humble about this – I did not expect the inflation rates that we’re seeing and they have lasted longer than I expected. And because they have lasted longer, I know that we need to take action more quickly than I would have guessed last year,” he said.

Asked what this meant for interest rates, Evans said he agreed with the majority of Fed officials who have penciled in three rate hikes this year.

“By the end of the year, I think we’re going to be in a better position to see exactly how persistent and long-lasting the inflation pressures are,” Evans said.

The Chicago Fed president, who has been a leading monetary policy “dove” on the central bank, won’t be a voting member of the Fed’s interest rate committee this year.

In their speeches since the beginning of the year, Fed officials appear united on view of moving away from the easy policy stance adopted during the pandemic. Most are backing a rate hike as soon as March.

“The committee very strongly is expecting two, three, four rate increases this year. We’ll see how it plays out,” he said.

“The key is going to be – are inflation expectations going to be higher and what are wages going to do going forward,” he said.

U.S. stocks were mixed on Thursday with the tech-heavy NASDAQ COMP, -1.51% down over 200 points. The yield on the 10-year Treasury note TMUBMUSD10Y, 1.714% moved down to 1.72%.

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