Fed's Evans says policy "wrong-footed," but may not need to be restrictive

Reuters

Published Feb 18, 2022 10:41AM ET

By Howard Schneider

NEW YORK (Reuters) - Current high inflation requires a "substantial repositioning" of Federal Reserve policy, but not so much that it will restrict the economy and wreck employment, Chicago Fed president Charles Evans said Friday.

Evans, in prepared remarks, laid out the case that price pressures still stand to ease on their own without aggressive Fed interest rate increases.

He did not give details on what he thinks the Fed should do at its March or subsequent meetings through the year, or wade into the debate over whether officials should start with a larger than usual half percentage point increase to jump start the process.

But he said his comments were meant to provide "discipline against scary guesses that the world is about to end," with the Fed losing control of inflation and needing to risk sharp rises in unemployment or even a recession to control it.

"Our present monetary policy setting is wrong-footed against the current, sharp increase in inflation," Evans said at a conference organized by University of Chicago Booth School of Business.

However, stripping out pandemic and supply chain effects that are likely to fade, "by my reading underlying inflation appears to still be well anchored at levels consistent with the Fed’s average 2 percent objective," he said.

As a result, "I see our current policy situation as likely requiring less ultimate financial restrictiveness compared with past episodes and posing a smaller risk" to jobs and growth, than was needed to fix bouts of inflation in the 1970s and 1980s, he said.