WASHINGTON (MNI) – It will take almost all of 2013 to see a
material improvement in jobs growth in the United States, meaning the
Fed should maintain its current aggressive pace of bond buying to
stimulate growth for at least that period, Chicago Federal Reserve Bank
President Charles Evans said Monday.

The FOMC announced Sept. 13 that in addition to its maturity
extension program, it will buy $40 billion in mortgage-backed securities
a month — and undertake additional asset buying if needed — until it
sees a significant improvement in the labor market, for a total of $85
billion in monthly asset purchases.

It also pushed out its forward guidance — how long its expects
interest rates to remain close to zero — to mid-2015 from late-2014.

The maturity extension, or ‘Operation Twist’, expires at the end of
the year, and Evans said in an interview on CNBC that the Fed must
decide if $85 billion a month in asset purchases is enough in order to
achieve “substantial improvement” in labor markets.

“I frankly think its going to take almost a year in order to see
the type of improvement in labor markets that I’m expecting — just
getting through the first half of next year with the headwinds that we
are facing — I think that it’s probably later in 2013 that we would get
there,” Evans said.

“So in my opinion we’d continue with those asset purchases until we
see payroll employment (growth) more like 200,000 or 250,000,” he added,
recommending that the Fed continue buying $85 billion in longer date
securities a month all of 2013.

“If you go from a period where you’ve got $85 billion dollars (a
month) being added to long duration assets to one where it’s only $40
billion, well that’s a step down in what you are delivering,” Evans
said.

As for whether the Fed will persist with the mix of Treasury and
mortgage-backed securities, Evans said the central bank will look at the
state of financial markets and their ability to absorb the Fed’s
actions.

“We’ve looked at it, it shouldn’t be a problem,” Evans said.

Another question will be whether the economy is improving and so
the program should be tailored and reduced a little bit, “or expanded if
we are not getting quick enough improvement,” he said.

Evans said the effect of the Fed’s actions should be mean economic
growth between 2.5% to 2.75% next year, while the unemployment rate
should drop to the 7% range by the end of 2014.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]