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.

Lehman Brothers emerges from bankruptcy

NEW YORK – Tue Mar 6: Lehman Brothers Holdings Inc’s. record $639 billion bankruptcy ended on Tuesday, clearing the way for it to start distributing about $65 billion to creditors starting on April 17, court documents show.

Lehman has said that it expects that first group of payments to creditors to be at least $10 billion.

Lehman, now a small fraction of its former size, collapsed on September 15, 2008 with $639 billion in assets, rocking the foundations of the global financial markets and catalyzing the Great Recession.

Exactly 1,268 days later, the legal end to the case enables Lehman to start paying back the creditors, which include Wall Street firms like Goldman Sachs Group Inc and hedge fund investors such as Paulso & Co, which together had asserted more than $300 billion in claims.

But Lehman Brothers will live on for some time as a sliver of its former self, selling assets and continuing to operate in its midtown Manhattan headquarters, where it is down to two floors.

The company, whose assets include $35 billion in cash, is due to make a second payment in September and then will continue to make periodic distributions in the future as it sells off its remaining holdings.