Accommodative monetary policy will need to be reversed “eventually,” but it could take a “couple years” for a return to normal, according to Federal Reserve Bank of Chicago president and chief executive officer Charles L. Evans.
“Currently, policy is, appropriately, very accommodative. But eventually we will have to return to a more normal stance,” Evans said in a speech yesterday at the University Club of Chicago, according to prepared text of his remarks released by the Fed.
“Judging the appropriate timing and pace for reducing accommodation poses a significant challenge for policymakers over the next couple years,” he said.
“On the one hand, removing too much accommodation prematurely could inhibit the recovery. On the other hand, as I noted, if the Fed leaves the current level of accommodation in place too long, inflationary pressures will eventually build,” Evans said. “The Fed’s decisions will be based on careful monitoring of business activity and keeping an alert eye out for signs of changes in the inflation outlook.”
In questioning by reporters after the speech, Evans estimated there would be no rate hikes for the next three to four Federal Open Market Committee meetings, about six months, with the caveat that it depends on the inflation outlook and the economy.