The known dove Chicago Fed President Charles Evans started to turn hawkish in his comments to reports yesterday. Evans said the the economy is “extremely strong” and it’s “really a very good period of time” for both the economy and monetary policy setting. And Fed funds rate might eventually enter into “somewhat restrictive” area as economy strengthens while inflation stays above target.
He also noted that “inflation has moved up to 2 percent essentially”. There is “good reason to expect we will stay in that area.” Also, if inflation continues to be “on the order of 2, 2.2”, that “suggests only a modest amount of restrictiveness above our neutral rate might be called for in 2020.” And, “it would not surprise me at all if we make a judgment to move to a somewhat restrictive setting.” He cited it could be roughly 0.5% above his neutral rate of 2.75%.
Evans also downplayed the impact of Trump’s trade policy. He said “you size up the tariffs, the increases in input costs … and you find that while it sounds like a big number … the actual effect on industry output and GDP is still measured in a few tenths”of a percentage point. And, “the magnitude still seems to be relatively small, uncertain, against a context where the economy is very strong and we have just added quite a lot of fiscal stimulus.”