The supply-chain woes bedeviling the U.S. economy will be resolved in time to allow continued expansion in 2022, said Chicago Federal Reserve President Charles Evans on Thursday.
“The reason why I think momentum will be good going into next year is because I think the supply-chain issues are going to be rectified,” Evans said, during a discussion as part of the BKD Financial Services Virtual Symposium.
Evans said it would take until next spring to get a firm view on supply-chain issues.
The unemployment rate is likely to continue to fall below 4% and could approach the 3.5% rate seen before the pandemic, Evans said.
The Chicago Fed President, one of the leading monetary-policy doves at the central bank, said he thinks inflation could moderate to “closer to 2%” by the end of next year.
“I think inflation data by the end of 2022 is going to be a lot closer to 2% than many people think,” Evans told reporters after his speech.
The economy remains far away from any risk that higher inflation readings will become embedded in the economy, he said.
The Fed has positioned itself quite well, Evans said. The central bank has started to slow down, or “taper,” its asset purchases and those should end next June. Once the next nine months is over, “I think we’ll be in a better position to understand where future inflationary pressures are going to go and how much we should adjust the stance of monetary policy,” he said.
Evans said he still doesn’t expect to see the need to raise short-term rates before 2023, but added that this forecast “might be a closer call than I thought a few months ago.”
He said he had to be more open-minded given the data.
“I wouldn’t describe it as ‘hair on fire’ or anything like that,” but the spike in inflation has gone on longer than he had thought it would, Evans said.
“It could be the case that 2022 is appropriate” to lift-off, he added,
So far, financial markets have remained calm as the Fed starts to slowly reverse its easy policy stance. The yield on the 10-year Treasury note
slipped under 1.6% on Thursday, still below the high rate for the year of 1.75% hit in early April.