MNI: Evans Sees Low Fed Rates For Some Time, Inflation Ebbing

Chicago Fed President Charles Evans said Monday that policy interest rates could remain low for some time and even with some recent upside risks inflation should moderate as workers and firms restore supply networks.

"There are many uncertainties to the outlook and changing circumstances could lead the FOMC to move up or delay rate increases. But judging from where the economy stands today, it looks like we are in for a low rate environment for some time to come," Evans said in prepared remarks to the OESA automotive suppliers' conference.

"Much of the current surge in inflation is temporary," he said, and "while good progress has been made, we still have a way to go before we meet the FOMC's inclusive employment mandate."

The labor force has shrunk by 3 million since the pandemic and in normal times it might have instead expanded by 1.4 million over this period, he said. Issues around fear of contracting Covid, expanded jobless benefits, lack of childcare and elevated retirements are likely to unwind, he said.

ISSUES SEEM MORE PERSISTENT

"Taken altogether, I expect that the currently elevated inflation readings from supply side pressures will eventually fade," Evans said. "I had expected to see more progress by now," and "these developments deserve careful monitoring and present a greater upside risk to my inflation outlook than I had thought last summer."

Evans reiterated the FOMC's views last week on tapering and said that shift is distinct from the path of interest rates. "With case counts coming down in the U.S. and further improvements in public health, there's room for optimism" on the economy's overall path, he said, adding his outlook aligns with the FOMC's median dot plot projections.

The FOMC sees unemployment declining to 3.8% by the end of next year and settling around 3.5% in 2023, "So, by this measure, our full employment goal would be well within sight," he said. "Of course, we will be looking at a broader list of labor market indicators when making this assessment."

There are signs of "marked increases in wages, signing bonuses, and benefits as firms try to hire the workers they want," he said.

"Eventually, these adjustments will be behind us and supply and demand conditions will normalize, bringing inflation lower. But how long that process will take is highly uncertain. The issues seem more persistent than many thought they would be a few months ago."