The U.S. July consumer inflation data was “positive” but the pace of price increases remains “much too high,” Chicago Fed President Charles Evans said Wednesday.
The 8.5% annual inflation rate over the past 12 months “is just huge,” Evans said, during a conversation about the economy and monetary policy at Drake University.
“That’s a big number, so nobody can be happy about that,” he added.
Read: U.S. consumer price inflation surprises to the downside
Markets welcomed the CPI data, where headline inflation was unchanged in July, bringing the annual rate down from a 41-year high of 9.1% in the prior month.
Evans said he expected the Fed to continue to increase its benchmark interest rate for the rest of the year and into next year in order to make sure that inflation gets back down to the central bank’s 2% target. Higher rates will raise the cost of borrowing money, serving as a brake for economic growth.
Evans, who in terms of monetary policy has been a dovish regional Fed president, said he sees the Fed raising its benchmark rate to 3.25%-3.5% by the end of the year. Other Fed officials want to get the Fed’s benchmark rate above 4% this year.
Evans’ forecast implies a slower pace of rate hikes over the last three Fed policy meetings. The Fed has been raising rates rapidly, engineering two ultra-large 75 percentage point rate hikes in June and July.
Evans said he expected a 3.75%-4% rate would be the “top” level of interest rates and the Fed would only push rates up to that level sometime next year.
On the optimistic side, Evans said he sees the core rate of the Fed’s favorite inflation measure, the personal consumption expenditure index, cooling down to close to 2.5% rate in 2023. The core rate of the PCE price index was 4.8% in June.
On the economy, Evans said he didn’t think the economy would “turn down in a significant fashion anytime soon.”
U.S. stocks
DJIA,
SPX,
jumped after the CPI data was released. The yield on the 10-year Treasury note
TMUBMUSD10Y,
inched down to 2.7%.
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