Fed’s Evans Sees Inflation Fall Below 2% Target After Current Hike Declines

The current wave of inflation will not last and will eventually fall below the Federal Reserve’s target, Chicago Fed Chairman Charles Evans said on Tuesday.

As inflation, by some measures, peaks in 30 years, Evans told CNBC that supply chain bottlenecks and other problems will ease and the pressures on prices will ease. ‘would mitigate.

“I’m comfortable thinking that these are high prices, that they will come down as the supply bottlenecks are resolved,” he told CNBC’s Steve Liesman at the meeting. ‘a live interview “Squawk Box”. “I think it could be longer than expected, absolutely, there is no doubt about it. But I think the continued increase in these prices is unlikely.”

Inflation has been 3.6% year-on-year for the past two months, the highest since the early 1990s, according to the Fed’s preferred indicator. Other measures, such as the consumer price index, push inflation even higher.

Evans acknowledged that the trend is putting pressure on the economy.

“It’s definitely a challenge for households and businesses. I mean, it cuts income, wages. So it’s a problem. We are certainly monitoring that,” he said. “It’s really not a monetary policy issue, it’s an infrastructure supply issue at the moment. So I think inflation will go down, and I think once it goes down, we will always be in a world of low interest rates. “

Nevertheless, the Fed has generally indicated that it has fulfilled the inflation part of its mandate, with a level largely exceeding the target of 2%. Therefore, the central bank is expected to start slowly withdrawing the unprecedented support it provided during the pandemic, starting with a decrease in monthly asset purchases.

However, interest rate increases are not expected to take place until at least the end of 2022, according to current projections by the Federal Open Market Committee. Market prices predict a first rise in November or December of next year, according to CME’s FedWatch tool.

While Evans has said he agrees with the cut, he said the Fed will soon face the familiar shift of keeping inflation at healthy levels and will likely have to keep rates low.

“It’s just a matter of making monetary policy produce sustainable inflation of 2% or more so that we can reach an average of 2% over time,” he said.