By Geoffrey Smith
Investing.com -- The Federal Reserve will have to raise interest rates a little above 4.5% and keep them there for some time to bring inflation down, a senior policymaker warned on Monday.
"I see the nominal funds rate rising to a bit above 4.5% early next year and then remaining at this level for some time while we assess how our policy adjustments are affecting the economy," Chicago Fed President Charles Evans said in a speech, the text of which was released online.
Evans said this would represent a real - that is, inflation-adjusted - rate of around 2% when benchmarked against inflation expectations, and a significant brake on the economy as a result.
He defended the Fed's succession of big interest rate hikes in recent months, which he said were necessary to bring real rates out of negative territory at a time when inflation is running at its highest in 40 years.
However, he also warned of the risk that the Fed may tighten too far.
"Overshooting is costly, too, and there is great uncertainty about how restrictive policy must actually become," Evans said. "This puts a premium on the strategy of getting to a place where policy can plan to rest and evaluate data and developments."