Federal Reserve Bank of Chicago President Charles Evans said his outlook hasn’t changed much.

“I have been a bit cautious, nervous about inflation,” Evans said in an interview on Bloomberg TV. “My outlook hasn’t really changed that much” despite a weak first quarter, but he said second quarter GDP data “may make up for” it.

Federal Reserve Bank of Chicago President Charles Evans.
Federal Reserve Bank of Chicago President Charles Evans. Bloomberg News

“We need to get inflation to 2%,” he said.

When asked if he still expected two more rate hikes this year, Evans hedged, later noting that he believes the projections in the Summary of Economic projections, which expects two more hikes this year, are a better expectation than market predictions.

As for labor markets, Evans said, “we’re very close to full employment, if not at full employment.”

The U.S. economy is sound, with “few downside risks” and even the “global environment is much more sound.”

Evans said the Fed is discussing the “size and pace” of balance sheet reductions and warned “it could take three, four, five years” before the balance sheet reaches a sustainable level.

When the fed funds rate target is normalized, Evans suggested it will be around 3%, leaving “not a lot of scope” should there be another downturn. In the past, cutting rates “500 basis points or more” was standard in a crisis, he said, so “we’re more likely to hit zero lower bound if hit by shocks.”

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