Detroit Regional Chamber > Chamber > Chicago Fed CEO on half-point rate rise in May: ‘Perhaps it’s highly likely’

Chicago Fed CEO on half-point rate rise in May: ‘Perhaps it’s highly likely’

April 25, 2022
Detroit Free Press
Apr. 11, 2022
Adrienne Roberts 

The president and CEO of the Federal Reserve Bank of Chicago gave consumers and investors another reason to think the Fed will move more aggressively to rein in inflation at its next meeting in May.

Charles Evans at a Detroit Economic Club meeting Monday said a 0.5% interest rate increase is “worthy of consideration, perhaps it’s highly likely even,” with the aim of getting to what he considers a neutral setting of 2.25-2.5%.

During a discussion hosted by Detroit Free Press personal finance columnist Susan Tompor, Evans said for the last few months he thought it would be good to get to that “neutral setting” by next March, but now he also thinks it would be good to get to that point by the end of this year.

“We need to position monetary policy much closer to neutral,” Evans said. “As one of my colleagues has said, we don’t need an emergency setting on monetary policy anymore.  The economy’s doing well and there is still a tremendous amount of momentum.”

Any rate increase is notable after more than three years of no increases. Fed officials have kept interest rates near zero since March 2020, when the COVID-19 pandemic decimated the global economy.

At its March 15-16 meeting, the Fed approved its first interest rate increase in more than three years. The quarter-point hike moved the federal funds rate to a level that now ranges between 0.25% to 0.5%.

San Francisco Fed President Mary Daly echoed Evans’ thinking in early April, when she told the Financial Times that she sees the case growing for a 0.50% interest rate increase in May. The next Fed policy meeting is in three weeks.

Tompor also asked Evans about the effect of rising interest rates on car loan payments and what consumers will be able to afford. The average new car interest rate is 4.21%, according to, and is expected to rise to 5% in a year, which equates to about a $14 per month increase.

“People have been willing to pay whatever it takes (to get a car) but that gets worked off and you’re going to get to the payment-sensitive buyer … where is that (choke) point?” Evans asked. “The future interest rate environment becomes important.”

He said Michigan is positioned well because goods are in high demand and the state has a large manufacturing sector.

But Michigan, and the country as a whole, haven’t seen labor force participation rates — a measure of people working or actively looking for work — recover to pre-pandemic levels.

“Where are the future workers going to come from?” asked Evans. He said it’s long been known that the U.S. population is aging and there was a slow recovery coming out of the 2009 recession, meaning the country didn’t need the largest workforce because the demand wasn’t there.

“We need to improve skill sets, we need to make sure that everyone has as much opportunity and the ability to get an education and training so that they can hit the workforce and be very successful,” he said. “We get productivity that way.”

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