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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Chicago Fed President Charles Evans said Friday that a big shift in monetary policy is needed to tackle inflation triggered by the pandemic, while cautioning that underlying price gains will still require less painful action than in past inflation spikes.
"The current stance of monetary policy is wrongfooted and needs substantial adjustment," Evans said in the of a speech, adding it remains an open question how big an adjustment is needed now to get back to an earlier goal of a modest inflation overshoot.
"I still see current inflation as largely being driven by unusual supply-side developments related to the Covid-19 shock," he said. "But inflation pressures clearly have widened in the broader economy to a degree that requires a substantial repositioning of monetary policy."
Absent the pandemic policy makers would likely still be waging a battle to get inflation up to 2% and Evans suggested policy makers keep that in mind while tightening monetary policy. In the past, central bankers have tightened at the sacrifice of potential job gains to head off rapid inflation that never really emerged, he said.
"Underlying inflation appears to still be well anchored at levels consistent with the Fed’s average 2 percent objective, and so -- unlike in the Volcker and Greenspan eras -- no extra monetary restraint is needed to bring trend inflation down," Evans said.
“We need to monitor developments carefully to make sure the current spike in inflation does not bleed over into an unwelcome increase in the underlying trend. If it does, more restrictive policy will be needed,” he said.
On the Fed's dual mandate and trade-offs between inflation and jobs, he said “when a conflict does arise, we may face some difficult trade-offs, but these have been long-studied and the decision-making is manageable.” He also said given the dual mandate, a third goal of financial stability should mostly be left to others to manage.
His remarks came at a University of Chicago conference discussing a paper and was titled "On the Benefits of Running the Economy Hot."
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.