Fed’s Evans sees economy achieving ‘escape velocity’ by 2014

DES MOINES, Iowa, Thu Feb 28, 2013 — The U.S. economy should emerge from the doldrums next year if the Federal Reserve sticks to its super-easy monetary policies, a top Fed official said on Thursday, even as he warned that cutting back too early would be a “big mistake.”

The Fed is buying $45 billion in Treasuries and $40 billion in mortgage bonds per month, its third round of “quantitative easing,” and has said it will continue the purchases until it sees substantial improvement in the labor market outlook.

“I don’t think we are anywhere near the end of the program,” Chicago Federal Reserve Bank President Charles Evans told reporters after speaking to the CFA Society of Iowa here.

In fact it will likely take until at least the end of the year before the jobs outlook improves enough for the Fed to stop its bond purchases, Evans said, and it will likely be mid-2015 before unemployment drops enough to allow the Fed to begin to think about a rate increase from current near-zero levels.

“I am optimistic that we have appropriate policies in place to help the economy achieve escape velocity by 2014,” he said, even as he acknowledged the downside threats to the economy from U.S. fiscal consolidation and economic troubles overseas.

“But we need to be careful not to undermine our own policies and remove accommodation prematurely, as the Japanese did,” he said. If the Fed were to raise rates too soon, he told reporters after the speech, “what would happen is the economy would slow and we’d find ourselves in another tailspin.”

Evans has been a key player in shaping the Fed’s ultra-easy policy stance, and was the first to champion the idea of tying Fed policy to specific levels of unemployment and inflation.