Chicago Fed Reserve President: Inflation, Higher Wages Will Challenge Small Businesses

Chicago Federal Reserve President Charles Evans on Friday (March 4) told CNBC that small businesses will likely take the brunt of ongoing inflation and higher wages.

CNBC interviewed Evans shortly after the U.S. Bureau of Labor Statistics said the country added 678,000 nonfarm jobs in February, considerably higher than expected, and noted that wages were up 5.1% from the same time a year ago.

“I think there are a lot of business models, especially for small businesses, that are going to be challenged for the future,” Evans told CNBC. “They’re going to be asked to pay higher wages, and you know if inflation is going up, it’s the real wage that’s going to equate demand and supply.”

The Fed’s preferred inflation gauge shows that inflation, even without including food and energy prices, is running at its highest level since the early 1980s.

“Wages are going to go up,” said Evans, who will support a vote later this month to raise interest rates one-quarter of a point. “If rents are going up, gas is going up, food costs are going up, and there are a lot of businesses where margins are very thin. Can they really survive that?

“Obviously, we need to be moving toward a more neutral monetary policy certainly by the end of the year, so that we’re within striking distance of taking a position that would deal more forcefully with inflation. I have said ‘wrong-footed’ [on policy], and I think that’s the right term. It happened very quickly,” he said.

Related: SMB Confidence Drops Amid Inflation, Supply Chain Issues

In February, a survey from the National Federation of Independent Businesses showed that American small business owners feel less confident about the country’s economy amid ongoing inflation and supply chain shortages.

The NFIB Small Business Optimism Index fell slightly in January to 97.1, a 1.8-point drop from December. Inflation remains a concern for small businesses, with 22% of owners reporting that inflation was the most important problem facing their business. That figure was unchanged from December, when inflation hit its highest level in 40 years.