Dhara Ranasinghe and Jorgelina do Rosario
LONDON (Reuters) – Chicago Federal Reserve Bank President Charles Evans said on Wednesday that market volatility could impose additional constraints on financial conditions.
Global markets have been rocked this week by turmoil in the UK market, which is already on the edge of the brink of sharp interest rate hikes by the Federal Reserve and other major central banks.
“The U.S. economy and inflation will largely depend on the stance of monetary policy and the supply shocks that are taking place and the labor issues we are dealing with,” Evans said in London. “In this case, volatility in financial markets may add additional financial constraints. Therefore, any policy or development around the world, such as Russia’s invasion of Ukraine, would add additional constraints.”
However, in an interview with reporters after an event at the London School of Economics, Evans said there was no sign that this would derail the Fed.
“We really need to get inflation under control,” Evans said. He said it would be better to adjust the Fed’s policy rate – currently 3%-3.25% – to 4.5%-4.75% to End of the year or March and then keep it for a while.
Given high inflation, real interest rates are “not tight enough” for now, but he said they should be around 2% by March, enough to put downward pressure on price.
He said inflation relief could also come from improved supply, taking solace in the fact that inflation expectations are “relatively aligned” with the Fed’s 2 percent inflation target.
