US Fed official expects 4.5% rate to tame inflation, says soft landing possible

By Ovunc Kutlu

ANKARA (AA) – President of the Federal Reserve Bank of Chicago Charles Evans said Monday he expects interest rates to rise to 4.5% in early 2023 to tame record inflation and added that soft landing is still a possibility to avoid a recession.

"I see the nominal funds rate rising to a bit above 4-1/2 percent early next year and then remaining," Evans said at the 64th National Association for Business Economics annual meeting held in Chicago.

He said most members of the Federal Open Market Committee (FOMC) are expecting to make a total of 100 to 125 basis points of rate increases before the end of this year, and added that the FOMC's median projection for the federal funds rate is later rising further to 4.6% at the end of next year.

The Fed on Sept. 21 raised its benchmark interest rate by 75 basis points for the third consecutive time to fight record inflation, carrying the federal funds rate to the 3.00%-3.25% range.

The central bank's terminal rate, the peak spot where the federal funds rate is expected to climb before it is trimmed, was also raised to 4.4% for 2022 and to 4.6% for 2023, as the central bank still struggles to fight an annual inflation figure above 8% -- the highest in four decades.

Evans argued that the Fed can bring inflation down "relatively quickly" while also avoiding a recession, which is referred to as a soft-landing.

"The consensus baseline is projecting a large decline in inflation over the next year and a half, but with only a modest increase in the unemployment rate. A pretty good-looking soft landing," he told.

Chicago Fed president pointed out to supply chain problems, chip shortage, shortages of other parts that limit assemblies, disruptions due to Russia's war on Ukraine and unpredictable COVID-19-related shutdowns notably in China as some of the major reasons behind the rapid increase in prices.

"We’ve experienced a broad-based increase in inflationary pressures that monetary policy must address. Without a period of restrictive policy, inflation will come down some, but not to anything near our 2 percent objective. The required monetary response will restrain aggregate demand," he explained.