The President of the US Federal Reserve Bank of Chicago, Charles Evans, has said that interest rates are likely to peak at below 5%. Earlier this week, he stated that the central bank would need to increase rates to between 4.5% and 4.75% to tackle inflation, which has soared to its highest level in decades.
The bank chief had previously been pushing for rates to peak at 4%. However, ongoing inflationary pressures coupled with the challenges the central bank faces in bringing inflation back to its 2% target have resulted in a change of stance.
He said: “I had a sobering assessment that we’ve got more work ahead. I’m optimistic that the peak that we’ve set out is going to be sufficiently restrictive that it could be enough.”
Evans added he believed it was unlikely that unemployment rate numbers would hit ‘recession-like’ levels despite any economic growth slowdown resulting from rate hikes.
Discussing the latest projections from Fed policymakers
Speaking at the Official Monetary and Financial Institutions Forum in London, Evans discussed the latest Fed policymakers’ projections on interest rates.
According to the data, officials expect to increase the policy rate to 4.4% by the end of 2022 and 4.6% by the end of 2023. These figures are based on a median estimate from 19 policymakers. Evans stated that his projection was in line with this assessment.
Evans also said that inflation would likely fall significantly over the coming two years despite the variety of risks that the nation still faces.
He said: “Supply-side repair could continue to move too slowly; events in Ukraine or further COVID-related shutdowns could put additional pressure on costs; and monetary policy may, on the one hand, not rein inflation in enough or, on the other hand, weigh too heavily on employment.”
Based on this, Evans said that the Fed needed to monitor the situation and that officials needed to be ready to adjust policy based on any changes in economic circumstances.
Last week, Fed Chair Jerome Powell warned the economy was facing tough times ahead, adding interest rates were likely to remain at their peak for a considerable time, something many of his colleagues agreed with.
The Fed hiked interest rates by 0.75% at the last policy meeting. According to the data, investors now believe there is a 70% chance that the same will happen at the November meeting.