In a speech, Chicago Fed President Charles Evans said, for the balance sheet, the economy as being close to meeting the “substantial further progress” standard for beginning to taper asset purchases. “If the flow of employment improvements continues, it seems likely that those conditions will be met soon and tapering can commence,” he added.

On inflation, Evans said, “long-run inflation expectations are still likely somewhat below target”, as ” inflation break-even rates in financial markets over the five- to ten-year horizon are still below the levels we saw in 2012 and 2013—a period when they were arguably better aligned with 2 percent PCE inflation.” And, “a ten-year nominal Treasury rate in the range we’ve seen recently simply can’t have a whole lot of expectations of long-run inflation built into it.”

“Taken altogether, I am more uneasy about us not generating enough inflation in 2023 and 2024 than the possibility that we will be living with too much,” he said. “My concern is that when the Covid distress ultimately recedes broadly around the world, we will not have been freed from the downward bias on inflation imparted by the ELB.”

Full speech here.

At a Fed conference overnight, Dallas Fed President Lorie Logan said that inflation appears to be “trending toward 3%”, a figure still above the 2% target.

Despite a cooling labor market, Logan highlighted that it remains “too tight,” implying that the job market’s strength could continue to put upward pressure on wages and, consequently, inflation.

Logan emphasized the need “see tight financial conditions in order to bring inflation to 2% in a timely and sustainable way”. She will be looking at “data” and “financial conditions” as the next meeting in December approaches.

With a particular focus on recent retracement in 10-year Treasury yield and broader financial conditions, Logan suggests these elements will play a pivotal role in shaping Fed’s forthcoming monetary policy decisions.

Fed Chair Jerome Powell insisted in a House panel hearing that “we will not raise interest rates preemptively because we fear the possible onset of inflation.” Instead, “we will wait for evidence of actual inflation or other imbalances.” He reiterated that the transitory factors that pushed up inflation should “resolve themselves” in the coming months. And, “they don’t speak to a broadly tight economy and to the kinds of things that have led to higher inflation over time.”

“I will say that these effects have been larger than we expected, and they may turn out to be more persistent than we have expected,” he explained. “But the incoming data are very consistent with the view that these are factors that will wane over time, and inflation will then move down toward our goals and we’ll be monitoring that carefully.”

“You have a central bank that’s committed to price stability and has defined what price stability is and is strongly prepared to use its tools to keep us around 2% inflation,” he said. “All of these things suggest to me that an episode like what we saw in the 1970s … I don’t expect anything like that to happen.”