Thursday, December 1 2022

November 4 (Reuters) – It’s time for the Federal Reserve to shift to lower interest rate hikes to avoid tightening monetary policy more than necessary, and to slow the pace further once risks become more ” double,” Chicago Fed President Charles Evans said. Friday.

“From now on I don’t think it’s feed forward anymore, I think he’s looking for the right level of restriction,” Evans told Reuters in an interview, referring to the series of oversized rate hikes from the US central bank.

“Coming down at a pace that’s not 75 (basis points), give the (Federal Open Market) Committee a little bit of runway to see more data before you get too far ahead of where you ultimately want to be, that makes sense to me.”

The Fed announced its fourth consecutive 75 basis point interest rate hike on Wednesday, taking the key rate to 3.75%-4.00%, as part of an effort to “rapidly” raise costs enough borrowing to start slowing growth and biting into inflation.

Evans said he supports this week’s decision and also expects the Fed to eventually raise its benchmark overnight interest rate “slightly higher” to the 4.50% to 4 range. .75% that he and many of his fellow policymakers had previously thought would mark the peak of the current tightening cycle.

But the Fed should now slow the pace of its rate hikes, given that tighter policy is likely to bring inflation down only slowly, he said, echoing but with a slightly more dovish emphasis, to the opinion of Fed Chairman Jerome Powell, exposed earlier this week.

“There is sufficient capacity” to tighten monetary policy, even at a slower pace, he said. “We have accomplished frontloading and are now at the point where we are looking for the right level of restriction and being aware of data dependency in a world where inflation is just lagging behind the real economy.”

The Fed’s preferred inflation measure is more than three times higher than the central bank’s 2% target. It is unlikely to return to that target for a few years, even in the face of the Fed’s most aggressive rate hike campaign since the 1980s.

“If it were true that the Committee still saw the need to raise rates quickly, because the inflation reports weren’t as favorable as we would like, you can do 50 (basis points), at multiple times, and in four meetings, you’re up 200 basis points,” Evans said.

But the Fed would also be able to scale from 50 basis point hikes to 25 basis points if needed, he said.

“You have to be close enough to where you think it’s not that far away, otherwise it becomes very two-sided. You’re looking for the point where you have two-sided risks,” Evans said. “I think most people would say for now that it’s not a two-way street: inflation reports are likely to still be disappointing even if they start to improve.” (Reporting by Ann Saphir; Editing by Paul Simao)

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