MNI BRIEF: Fed's Evans Says Underlying Inflation May Lag 2%

Chicago Federal Reserve President Charles Evans said Thursday that while supply shocks will contribute to faster inflation well into next year, the underlying trend of prices may hold below 2% and make it difficult for policy makers to achieve their goals.

"I still see underlying inflation as below 2% and not enough lift being done with wage and price growth," Evans said during a webinar with Princeton University professor Markus Brunnermeier. Evans reiterated that tapering will be justified around the end of this year and done around the middle of next year, with one rate increase in 2023.

"The supply restraints are going to ease somewhat next year" and inflation could be 2.1% in 2023, he said, pointing to industries such as steel and lumber that are making adjustments. While inflation around 2.5% may not be a problem given the Fed's framework, persistent readings towards 3% would be uncomfortable, he said. "How that works its way into expectations is going to be a big question."