WASHINGTON (MNI) – Chicago Federal Reserve President Charles Evans
reiterated his belief Wednesday that the economic recovery in the United
States is well established, despite some fears in the market that the
country could be hit by a double-dip recession or a severe slowdown.

He also argued that the Fed’s accommodative monetary policy is
appropriate, given the employment situation and the low risk of
inflation in the near-term.

In an extended interview on CNBC, Evans said he still expects U.S.
GDP to grow by about 3.5% in 2010. “I think what we are seeing at the
moment is the way a moderate recovery likely proceeds … but I’m
expecting growth to continue.”

“The recovery is definitely on,” Evans declared, and while it will
be moderate in nature, it is not “faltering.”

Monthly economic data tends to see-saw during a recovery, he
argued, but acknowledged the housing situation remains “very difficult.”

Employment is another area where struggles will continue, Evans
added. It is very difficult to improve the situation in the labor
market, and it will be a “number of years” before the unemployment rate
gets down to a level that can be considered acceptable.

Asked to defend the Fed’s current stance on interest rates, Evans
said the central bank is currently under-running its dual mandate of
maximum employment and price stability.

“I think a policy accommodation is called for,” he said, arguing
that inflation risks “remain far in the future.”

Evans said he expects inflation to be under his 2% guideline for
the next three years or more. It would take additional monetary stimulus
to generate higher inflation, he added.

Still, “I’m going to be looking at the circumstances and if we need
to adjust policy in either direction, I’ll be responding,” he said.

Evans said there is a lot of debate about inflation at the Fed,
will the outlook more variable than he had ever seen. “There’s an awful
lot of discussion, trying to get at the heart of what the situation is
— we are going to continue to debate that.”

Evans said the situation in the Eurozone has imposed additional
risk on the U.S. recovery. While the effects on the real economy will be
small, he warned that if there is a spillover to the financial sector,
“that would be a more challenging problem.”

For now, however, “It continues to be a headwind against a very
moderate recovery,” Evans said.

Switching back to the economy, Evans says companies right now do
not have the workforce necessary to meet future demand, so when demand
gets stronger “they will be surprised and that’s how we get employment
gains.”

“Replacement” demand is what is being seen right now, he said, not
the necessary expansionary demand. “That’s what we are going to need in
order to get out of this 3% to 3.5% growth.”

The U.S. economy should be adding about 200,000 jobs to keep up
with growth in the labor force, Evans said, but added he not as
optimistic that there will be enough progress on the jobs front as he
would like.

The Chicago Fed president also highlighted a number of issues that
continue to plague financial institutions, such as commercial real
estate. “I think it will be challenged for some time,” Evans said.

Asked if more fiscal stimulus might be warranted to secure the
recovery, Evans said he is wary of how effective any additional stimulus
measures would be at this point.

** Market News International Washington Bureau: 202-371-2121 **

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