One of the Fed’s most prominent doves is suddenly sounding decidedly hawkish. That could lead to further clashes with President Donald Trump.
Chicago Fed President Charles Evans dissented from the Fed’s decision to raise rates as recently as December. But on Thursday he told reporters that the Fed may need to raise interest rates to restrict economic growth in the next year or two.
“If inflation continues to be on the order of 2, 2.2 — I’m not expecting it to get as high as 2.5 — that suggests only a modest amount of restrictiveness above our neutral rate might be called for in 2020,” Evans said, according to Bloomberg. “It would not surprise me at all if we make a judgment to move to a somewhat restrictive setting.”
The Fed has described the stance of monetary policy as “accommodative” ever since the onset of the financial crisis and the Great Recession. That’s Fed speak for the notion that monetary policy is intended to encourage economic growth, lifting employment and inflation back toward the Fed’s goals.
But the Fed’s recent policy hikes have many thinking that the Fed may begin to describe its policy as neutral. Evans comments suggest the Fed may go even further and begin to actively restrict economic growth.
That would put the Fed on a collision course with the Trump administration, which is aiming to raise economic growth through tax cuts, regulatory reform, and an America first trade policy.
Trump recently said he did not agree with the Fed hikes, accusing them of working against his administration’s pro-growth policies.
“I don’t like all of this work that we’re putting into the economy and then I see rates going up,” Trump said in an interview with CNBC.
The following day, Trump tweeted out his objection to higher rates.
The comments of Evans, considered one of the Fed policymakers least likely to support monetary tightening, appear to support Trump’s analysis.