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.

U.S. economy to grow 2.5 percent this year: Fed’s Evans

CHICAGO, Mon Jan 14, 2013 — The U.S. economy is expected to grow by 2.5 percent in 2013, improving to 3.5 percent growth in 2014, Chicago Fed President Charles Evans said at the Asian Financial Forum in Hong Kong.

Evans also forecast the U.S. unemployment rate would be 7.4 percent this year, easing to about 7 percent in 2014.

Last month, Fed policymakers said they expected GDP growth of between 2.3 and 3.0 percent this year, and 3-3.5 percent in 2014.

Fed should keep easy policy to boost economy: Evans

LAKE FOREST, Ill. ― The U.S. Federal Reserve should stick to its super-easy monetary policy to fight unemployment and spur a “painstakingly slow” economic recovery, even if doing so pushes inflation temporarily higher, a top Fed official said on Wednesday.

“There is a natural tendency for policymakers to pull back on accommodation too early before the real rate of interest has fallen to low enough levels,” Chicago Fed President Charles Evans said in an address to a business group. “It is essential that the Fed clearly commit to a policy action that is measurable against our goals.”

Jeffrey Lacker, president of the Richmond Fed and an inflation hawk, also touted the benefits of clear communications in an interview with CNBC.

However, unlike Evans, he said it would not be appropriate for the Fed to set a numerical target for unemployment.

Fed policymakers meeting on Jan. 24-25 will debate a statement on their longer-run policy goals and could go so far as to set an inflation target.

Last week, the president of the St. Louis Fed Bank, James Bullard, told Bloomberg Radio that agreement to begin inflation targeting was near. “We are getting closer to being able to make a committee-wide statement about these longer-term policy issues,” he said.

Evans wants the central bank to keep interest rates near zero until either unemployment falls below 7 percent or inflation rises above 3 percent. He said that a prolonged period of low rates will likely help the economy and is unlikely to result in higher-than-normal inflation.

Unemployment registered 8.5 percent in December. Despite a recent improvement in economic growth, Evans said, inflation will probably fall to 1.8 percent this year and to near 1.5 percent in 2013 and 2014, below the 2 percent level the Fed views as healthy.

Lacker said he was not too worried that inflation would exceed the Fed’s comfort range this year.

Evans said that inflation at around two percent seemed to be tolerable to a majority of policymakers currently but added: “I think clarifying that would be very helpful.”