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Chicago Federal Reserve President Charles Evans said Friday he's prepared to hike interest rates more aggressively if the Ukraine invasion and more Covid waves push inflation higher.

"Both of these present upside risks to inflation and downside risks to growth, and we will be monitoring their impact on the economy very closely. As we move through the year, we will certainly learn more and will be prepared to adjust policy as needed,” he said in the text of a speech.

"I am well aware that developments may transpire in a way that would cause me to alter my assessment,” that's in line with the FOMC median estimate for the equivalent of seven quarter-point rate hikes this year and three next year, Evans said.

The comments come as some investors see the Fed accelerating from its 25bp rate hike last month to one or more 50bp increases with inflation at the fastest in decades. Evans defended the Fed's inflation fight saying the rise in prices was a sudden jolt as industries like automakers struggled to fill orders rather than the situation around the 1970s when the FOMC allowed a long buildup of wage and price expectations, a situation he pledged to avoid now.

"Monetary policy must shift to removing accommodation in a timely fashion, which is what you’ve seen in the latest actions by and communications from the FOMC,” he said. “Our recent 25 basis point rate hike was the first of what appears to be many this year.”

Firms are adjusting production in a way that should help restrain inflation but "this is going to be a complicated process,” he said. The labor supply is also likely to remain "quite modest" for some time on weak immigration and the retirement of Baby Boomers, he said.

MNI Ottawa Bureau | +1 613-314-9647 | greg.quinn@marketnews.com
MNI Ottawa Bureau | +1 613-314-9647 | greg.quinn@marketnews.com

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