Fed’s Evans sees price spikes ahead, but policy steady

© Reuters. FILE PHOTO: Chicago Federal Reserve Bank President Charles Evans pictured at an event in Mexico City

By Ann Saphir

(Reuters) – Chicago Federal Reserve Bank President Charles Evans on Wednesday forecast a rapid economic rebound this year, but said monetary policy will need to remain super-easy to boost “too low” inflation, even as prices are expected to temporarily spike this spring.

“It will be critical for monetary policymakers to look through temporary price increases and not even think about thinking about adjusting policy until the economic criteria we have laid out have been realized,” Evans said in remarks prepared for delivery to the Oakland University School of Business Administration, in Rochester, Michigan. “So I see us staying the course for a while.”

The Fed cut interest rates last March to near zero and has pledged to keep them there until the economy reaches full employment and inflation hits and is on track to exceed 2%. The central bank has also said it will continue to buy $120 billion of bonds each month until it sees substantial further progress toward its employment and inflation goals.

Evans said he is optimistic that the ongoing boost from the Fed, along with the $892 billion pandemic relief package passed in December and the rollout of vaccinations, will power the economy to grow 5% to 6% this year.

His forecast, he said, also pencils in about half the $1.9 trillion fiscal package that the Biden administration is pushing for.

Unemployment, now at 6.7%, could be back down near its pre-pandemic level of 3.5% by the end of 2023, Evans said.

But inflation, he said, is another story. Though fast economic growth and temporary supply constraints are expected to boost prices this spring, inflation will likely end this year at around 1.5% or 1.75%, and may not get to the Fed’s goal of moderately exceeding 2% until the mid-2020s, he predicted.

“Monetary policy still has a good deal of work to do here,” he said.

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