By Steven K. Beckner

COLUMBIA, S.C. (MNI) – Chicago Federal Reserve Bank President
Charles Evans said Monday that it would be “costly” if the U.S. dollar
were to lose its status as the world’s leading reserve and “vehicle”
role, but said he sees no near-term danger of that.

Evans, answering questions following a speech at the University of
South Carolina business school, said the Fed will not endanger the
solidity of the dollar by monetizing the U.S. national debt. And he
expressed encouragement that Congress and the administration will put
the U.S. fiscal situation on a more sustainable course.

Asked by an audience member whether the dollar was in danger of
losing its preeminent international status, Evans said the dollar’s
“special role … provides us with some genuine benefits.” And he added,
“it would be costly if that situation were to change.”

But Evans noted that in times of crisis people still “rush to
dollar-denominated assets.”

He said there are signs that Washington is “making progress toward
a longer term sustainable fiscal situation” and said that would
“solidify our role as vehicle currency.”

“We’re well-positioned to continue our role in that current
capacity,” he added.

Evans, a voting member of the Fed’s policymaking Federal Open
Market Committee this year, said that if productivity growth were to
slow, it would likely be accompanied by reduced resource slack, and the
Fed “would have to adjust monetary policy appropriately.”

He was asked about the consequences of leaving the federal funds
rate near zero “for an extended period.”

“I don’t think there have to be any negative long-term side
effects,” he said, though that is “possible if we don’t do our job and
take away (accommodation) at an appropriate time.”

Asked about the U.S. Treasury’s planned sales of mortgage-backed
securities from the portfolios of government-sponsored enterprises in
its conservatorship, Evans said the pricing of those MBS sales would be
interesting for the Fed to watch.

“It will be interesting to see what kind of price action we’ll get
out of that,” he said. “There may come a day when we eventually want to
sell some of them.” So he said it will be helpful to “getting an idea of
(the market’s) appetite could be helpful down the road.”

In earlier remarks to reporters, Evans welcomed the 0.7% rise in
February personal spending, saying it bodes well for his forecast of 4%
GDP growth.

** Market News International **

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