On Friday, Chicago Fed President Evans stated that the US economy has recovered to a state similar to normal, therefore requiring a more normal level of interest rates. He believes that the Federal Reserve will have more room for rate cuts in the future and is not too concerned about specific timing.

At the 18th Community Bankers Symposium of the Chicago Fed, Charles Evans gave a speech comparing the economic conditions under the new crown epidemic and recovery after the epidemic to the Aurora Borealis on Thursday night. Due to a strong solar storm that night, the aurora was visible across the entire U.S. mainland. Evans said:"This economic cycle is unlike any other before, much like the unusual appearance of the aurora in the Chicago night sky on a random night in October."

He stated that current economic conditions have returned to a near-normal state, pointing out that the unemployment rate has dropped to around 4% and the inflation rate is gradually approaching the Federal Reserve's annual target of 2%. However, Evans believes that the federal fund interest rate is still at abnormal levels.

"In the long term, inflation has dropped significantly," he said. "And in terms of the labor market, it has cooled down from an overheated state to enter into a state of stable full employment. If we can freeze this picture, it would be an ideal scenario that meets the dual mandate of controlling inflation and maintaining employment. So, if this is the normal state, then I believe the current interest rates are still far above the level they should be at for stability."

In the past three years, the focus of the Federal Reserve has been on curbing inflation. The Fed raised interest rates to a tightening range and maintained this level for over a year. On September 18th of this year, the Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate by 0.5 percentage points to 4.75% to 5.0%.

Evans said that this move reflects progress in slowing inflation and aims to prevent further deterioration in the labor market. He pointed out:"Historically, the labor market has had a pattern like this - once it starts going downhill, it's too late, the recession is already here."

Goolsbee is not too concerned about the details of the FOMC's actions at the November meeting or other specific meetings. He is more focused on the long-term trend of interest rates.

He said: "In the next 12 to 18 months, interest rates will eventually fall to the level of 2.5% to 3.5%, and we are currently far above this level. For me, the most important thing in monetary policy is to acknowledge that interest rates are falling, while the specific timing is not so important."

On Friday, interest rate futures pricing showed that the market expects an 88% chance of a 25 basis point rate cut in the federal funds rate on November 7th.

Editor/Rocky