Chicago Fed President Charles Evans said on Wednesday that US inflation is extremely high and that needs to be addressed by monetary policy for sure, reported Reuters. We will continue to see strong labour markets, Evans continued and will have to adjust monetary policy to deal with high prices, with inflation currently posing "quite a risk" to economic growth.
On the Ukraine crisis, Evans said that at the moment, there are no obvious spillovers to the US economy. We need to readjust policy so that its moving towards neutral, Evans continued, saying that inflation will come down this year and into next, although inflation will likely be closer to 2.5% next year as opposed to 2.0%. It will take until 2024 to get inflation back to 2.0%, Evans remarked. Inflation is still likely to be more than 3.0% at the end of the year, he added.
On monetary policy, Evans said that "we are going to get moving quickly" and towards neutrality. Evans said he expects to adjust policy over the next "several meetings", and the Fed will then need to take stock and see. We are "wrong-footed", Evans said, and need to get moving, adding that it would take some time to get to neutral.
As the Fed raises interest rates, if inflation deteriorates, we could raise interest rates more quickly, Evans stated. We need to be north of zero by quite a bit, he added, reiterating that "we are going to get going". Some might interpret Evans' reference to the need to get moving quickly in lifting interest rates as an endorsement of a 50bps hike later this month.
Market Reaction
The Dollar Index (DXY) did not react to the latest remarks from Fed's Evans, or the pre-release of Fed Chair Jerome Powell's opening remarks at his upcoming semi-annual testimony before Congress, or to strong ADP figures. Focus right now is much more on geopolitics, which remains supportive for the safe-haven buck for now, which explains why the DXY is getting good demand in the 97.50 area.