Evans on Fed Policy and Inflation (with Stephen Engel)

Former Chicago Fed President Charles Evans discusses the Fed's inflation challenge, noting it has been above 2% for 5-6 years. He suggests the new Fed Chair Warsh may need to hold rates longer or even hike, depending on Middle East conflict outcomes. Evans expresses concern about persistent inflation and structural labor market changes from AI.

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Chicago Fed 9.4
Central Bank
Charles Evans 8.5

Evans on Fed Policy and Inflation (with Stephen Engel)

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If the Fed holds rates higher or hikes, the dollar could strengthen.

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Persistent inflation and geopolitical uncertainty could drive demand for gold as a safe haven.

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Evans does not directly discuss equities but implies higher-for-longer rates would pressure growth stocks. The AI-driven rally in memory chips is noted separately in the program but not by Evans.

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Evans does not discuss small caps directly, but higher rates and inflation uncertainty could keep the Russell 2000 rangebound.

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Evans mentions the Middle East war conflict and its inflationary implications, suggesting oil prices could rise if the conflict persists.

3/23/2026 4:18:40 PM	short term up	6 days later	+11.40%	+11.40%

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Evans suggests rates may need to stay higher for longer or even rise due to persistent inflation above 2% for 5-6 years, Middle East conflict adding inflationary pressure, and the new Fed Chair inheriting this challenge.

2/25/2026 12:14:44 AM	medium term cautious down	20 days later	+6.02%	-3.01%
1/15/2026 8:49:33 PM	medium term cautious down	20 days later	-0.50%	+0.25%
1/15/2026 4:20:34 PM	medium term cautious down	20 days later	-0.50%	+0.25%
12/12/2025 7:30:18 PM	long term cautious down	60 days later	-3.01%	+1.51%
12/12/2025 4:27:07 PM	long term cautious down	60 days later	-3.01%	+1.51%
9/23/2025 4:21:15 PM	medium term cautious down	20 days later	-3.01%	+1.51%
8/15/2025 8:22:39 PM	medium term cautious up	21 days later	-6.80%	-3.40%
8/15/2025 4:22:33 PM	medium term cautious up	21 days later	-6.80%	-3.40%

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Asks Evans about the next FOMC meeting, noting divergent opinions on whether the inflationary impact from the war might lead to a hike instead of a cut.

Stephen Engel
Charles Evans

Inflation has been above the Fed's 2% objective for 5-6 years and is projected above 2% next year as well. New Fed Chair Warsh inherits this issue. Recent Fed commentary shows impatience with the pace of disinflation, with three dissents at the last meeting and Governor Waller signaling upside risks to rates.

The adverse scenario with the war taking longer could have inflationary implications.
Asks who the new Fed Chair Warsh has to listen to - the Trump administration wanting cuts or the 11 FOMC members.

Stephen Engel
Charles Evans

Warsh will take stock of everyone's views and choose a course true to the 2% inflation objective. This could mean sitting at the current rate longer than expected, or a rate hike ahead, or if Middle East issues resolve, inflation could come down.

Warsh likes messy meetings where everyone explains themselves, leading to the best collective choice.
Asks if the Warsh Fed will be less independent than under Powell.

Stephen Engel
Charles Evans

Doesn't see it that way. The committee will continue looking at data. Warsh has said data dependence is too noisy and prefers a trend-dependent approach.

Administrations always like easier monetary policy, especially before elections, but that's just background noise.
Asks how Evans reads inflation now, with PCE at 3.8% creeping toward 4%.

Stephen Engel
Charles Evans

More troubled that inflation has been stably above 2% for quite some time. Tariffs had an effect, then the Middle East war conflict. The longer that takes place, the more the public gets nervous about inflation, potentially demanding higher wages, creating more inflation.

Inflation came down from its highest levels without a recession, but we got lucky. The unwinding may not get us to 2% - we could get stuck at 2.5%.
Asks about Warsh's plans to reduce the balance sheet from $9 trillion back toward $800 billion.

Stephen Engel
Charles Evans

A lower balance sheet is a worthy objective, but reducing reserve demand by banks would require an ambitious program that is not short and carries risk. The balance sheet was an important contributor to inflation, which gives pause with inflation as high as it is.

Warsh called his approach 'practical monetarism' which is worthy of greater discussion.
Asks about AI's impact on the labor market and whether significant unemployment from AI will affect the US economy.

Stephen Engel
Charles Evans

If AI leads to substantial employment reductions, this is a structural change that monetary policy cannot correct. Similar to the 1970s when policymakers misread structural unemployment as slack and got more inflation. Government and businesses need to work on reform programs.

Historically, technological transitions created jobs over 20-year periods, but in the first 5 years it usually didn't work out well for affected parties.
Asks if this could happen even in the first term of Mr. Warsh, since bankers say this is happening fast.

Stephen Engel
Charles Evans

Over a 20-year period, previous waves of innovation created jobs, but in the first five years it usually wasn't working out well for the affected parties.
Notes that bankers say AI is happening fast, possibly in Warsh's first term.

Stephen Engel
Charles Evans

Comparing to past innovation waves, they eventually created jobs over a 20-year period, but in the first five years it usually wasn't working out well for the affected parties.

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