Additional restrictiveness might ensue due to volatility in financial markets

According to the words of Charles Evans, current President of the Federal Reserve Bank of Chicago, financial conditions might be complicated by growing restrictiveness caused by market volatility.

As it was stated by Evans after an event at the London School of Economics, the direction of monetary policy, as well as many other conditions connected with currently happening supply shocks and difficulties on labor markets, will substantially determine the economy of the U.S. and the levels of inflation. He pointed out that this is the situation in which financial market volatility might have a direct influence on restrictiveness, magnifying it.

Nevertheless, in his interview in London, Evans didn’t mention a possibility of the mentioned circumstances to knock the Fed off the chosen course.

Evans considers inflation curbing to be the most crucial necessity at the moment. In his opinion, this goal might be achieved through raising the Fed policy rate to a diapason of 4.5%-4.75% in the coming months. He determined the time limit for said increasing to be near the year’s end or the beginning of spring, while also noting that the rate should be kept withing the mentioned range for a period of time. The Fed policy rate is currently within a range of 3%-3.25%.