By Ann Saphir

(Reuters) – Charles Evans, President of Chicago Federal Reserve Bank said Tuesday that the Fed may raise its policy range to 2.25%-2.5% in the year to take stock of the economic state. However, if inflation continues to rise it will probably need to increase rates.

Evans stated that “probably we are moving beyond neutral — I mean…that’s my expectation” at the Economic Club of New York. Many Fed policymakers consider neutral somewhere between 2.25% to 2.5%.

Evans pointed out some positive developments in the latest U.S. Inflation Report. It showed that consumer prices increased 8.5% in March but that there was a slowerdown in goods inflation. This includes used car inflation. It could lead to a lower inflation rate if this trend continues.

However, he said, data could even be the reverse, with Russia’s invasion Ukraine and COVID-19 locksdowns Shanghai adding to supply chain problems which have driven inflation higher.

Evans explained that “if inflation started to re-accelerate for whatever reason it would be a matter of grave concern.”

Next meeting of the Fed is in May. It’s widely anticipated that the Fed will raise rates by half a percentage point in May, and then again in June. The Fed could also decide to increase rates quarter-points throughout the year. This would bring rates up to Evans’ range of neutral in December.