Evans: Rates moving too high could have ‘nonlinear’ impact on economy

Chicago Federal Reserve Bank President Charles Evans speaks during the Global Interdependence Center Members Delegation Event in Mexico City

By Howard Schneider

CHARLOTTESVILLE, Va. (Reuters) – Interest rates that move too high could have a “nonlinear” impact on the economy as businesses become more pessimistic about the future, Chicago Fed President Charles Evans said on Wednesday, mapping out a case for caution in the central bank’s battle against high inflation.

The Fed currently projects its target federal funds rate will rise to 4.6% next year, and Evans said that “if we have to increase the path of the fund rate much more … it really does begin to weigh on the economy.”

“I worry that it’s sort of a nonlinear kind of impact … with businesses becoming very pessimistic and changing their strategies in a sort of notable way,” Evans said in remarks to reporters after an event at the University of Virginia.

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(Reporting by Howard Schneider; Editing by Sandra Maler)