–Retransmitting Story Published 21:44 ET Tuesday
By Sheila Mullan
NEW YORK (MNI) Chicago Fed President Charles Evans Tuesday night
said that “I dont have a number in mind” when asked how much Fed asset
purchases will be enough to aid the U.S. recovery but “I will know it
when we get there.”
Evans answered questions after a speech to the New York University
Money Marketeers.
In later questions from reporters in a smaller group, Evans said
that “I had not been tremendously optimistic about further strong
declines in unemployment” as he interpreted such jobless declines “as a
catchup” and added that, “I have been surprised that inflation had
stayed elevated.”
Evans also repeated that the Fed should “indicate that the Fed
funds rate” be kept at the current unusually low levels “until the
unemployment rate fell below 7%.” He also said that once the Fed would
see economic progress that it can “work out its way back from that.”
“The 2.5% and 3% growth is not enough to make meaningful progress
on the unemployment rate,” he added.
Evans told the audience that the FOMC “will keep trying” by
unusual policy additions until “we make progress” and added the Fed
could do more in terms of Operation Twist or other asset purchases and
he would like more clarity on when to do Operation Twist or other asset
purchases.
He minimized concern about whether the Fed would suffer losses on
profits on its asset purchase portfolio. He also added that he would
rather try harder than like Japan, not do enough. But he added that the
different points of view on the FOMC are very important and that members
have “differences” too on the forward policy guidance.
Evans demurred when asked a question about whether Germany should
exit the euro currency but did mention that U.S. banks should manage
their European risk assiduously.
Evans spoke two days before Fed Chairman Ben Bernanke is to address
the Congress’ Joint Economic Committe at 10:00 a.m. ET Thursday.
Earlier, in his prepared remarks, Evans kept up his campaign of
more accommodation to help jobs and acknowledged the upcoming FOMC
meeting will face economic data that has softened since the most recent
forecast updates.
Evans also said current low interest rates are “wildly
inconsistent” with fears of accelerating inflation.
Evans, speaking to the New York University Money Marketeers, said
the midpoint of the FOMC’s most recent quarterly forecasts was “a bit
under 3 percent over the next three years,” and “I’d have to say the
incoming data since those forecasts were made have been on the soft
side.”
“With such growth rates, we would close the large existing resource
gaps only gradually,” he went one. “Indeed, I expect that we will face
unemployment well above sustainable levels for some time to come.”
On inflation, “I don’t foresee much risk that inflation will rise
above reasonable tolerance levels” for the Fed’s 2% objective.
With “anemic” wage pressures “it is simply hard to see how any
persistent outsized inflation pressures could occur without some
parallel building of wages costs” as in the 1970s, Evans said.
“Currently, inflation expectations are well anchored, and so they
impart little pull on inflation one way or the other,” he said. “Putting
all of this together (and given that inflation has stood at 1.8. percent
over the past year), I conclude that inflation will likely remain near
or below our 2 percent target over the medium term.”
Evans repeated, as he has since the summer of 2010, that the FOMC
should employ the “strongest policy accommodation possible” and should
not raise rates until unemployment falls below 7%.
“I have consistently argued for the strongest policy accommodation
available,” he said. “With huge resource gaps, slow growth and low
inflation, the economic circumstances warrant extremely strong
accommodation,” he said. Europe’s problems and the impending “fiscal
cliff” in the U.S. only add to the arguments for more accommodation, he
said.
Evans went back over his view that despite the 2% inflation target,
that a large miss on the employment madate means “we should be willing
to undertake policy that could substantially reduce the employment gap
but run the risk of a modest, transitory rise in inflation that remains
within the risk of a modest, transitory rise in inflation that remains
within a reasonable tolerance range.”
He also dismissed concerns that, “with an explosion in the
monetary base like this, inflation must be just around the corner.”
Despite the fact the prediction has been made since mid 2009, three
years later, he said, “it has not come close to fruition.”
As to overall inflation, “The 10-year Treasury rate was 1.45% as of
June 1,” he said. “This is unprecedented in the post-World War II
economy and it is wildly inconsistent with rising inflation over the
timeframe that monetary policy is concerned with, such as the next ten
years.”
“With inflation near target, relatively moderate economic growth
expected for several more years, potential productive capacity at risk,
and a symmetric 2 percent inflation target, we should resist the sirens
call to prematurely raise rates or tighten our policy in any way,” Evans
concluded. “Instead, we should be providing more accommodation, in
particular by better articulating the economic conditions under which
our policy moves will be linked to the achievement of our mandated
economic goals.”
** MNI Washington Bureau: 202-371-2121 **
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