(Bloomberg) -- Federal Reserve Bank of Chicago President Charles Evans said that interest rates will probably rise above the level that neither restrains nor speeds up the economy -- but how much higher will hinge on whether inflation cools as expected.
“Probably we are going beyond neutral. That’s my expectation,” Evans said Tuesday during a moderated discussion at the Economic Club of New York.
Fed officials estimate the neutral rate lies around 2.4%. Evans, echoing other Fed officials, said he supported getting the target range their main policy rate up to around 2.25% to 2.5% by year end. It currently sits at 0.25% to 0.5%. Fed officials next meet May 3-4 and have said that raising rates by a half point, versus the quarter-point move they made last month, would be on the table for debate.
They expect higher rates, in addition to shrinking their balance sheet, will see price pressures that are currently the highest in four decades start to ease.
“On the way to December you’d be looking for any confirmation of the storyline,” Evans said. “It could be that short-term neutral is actually lower, and that by the time we get to 2.5, it’s actually contractionary for a variety of reasons. It could go the other way too,” he said.
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