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Overview: Fri, March 29

Charles Evans

Mon, October 22, 2007
University of Chicago

To me, the uncertainties about how financial conditions might evolve and affect the real economy mean that risk management considerations have an important role in the current policy environment. The cutback in nonconforming mortgage originations and the continued high level of inventories of unsold homes will result in further weakness in housing markets. Under one scenario, the effects on overall growth will be fairly isolated to declines in residential construction similar to our experience in 2006 and early 2007. However, there is a less benign possibility. Housing demand and prices could weaken a good deal more than we expect either because a new shock hits the sector or because we have underestimated the weakness already in train. A more pronounced downturn could weigh more heavily on consumer spending. In addition, further delinquencies and foreclosures could add to the problems with mortgage-backed securities. This, in turn, could generate further adverse effects on financial conditions that support economic activity. Together, such events would pose a more serious downside risk to growth. I want to emphasize that I do not see this extreme outcome as likely. But it is one of those high cost outcomes that we should guard against.

Mon, October 22, 2007
University of Chicago

[O]ur baseline forecast sees soft economic activity this fall; notably, it is likely that a further sharp decline in residential investment will weigh on the top-line growth numbers. But we see growth recovering next year and moving up to average close to potential later in 2008, which we at the Chicago Fed currently see as being somewhat above 2-1/2 percent. This lower potential number in part reflects an assumed trend in productivity growth that is slower than the trend we experienced over the 1995-2003 period. Nonetheless, the new productivity trend is still a healthy one by longer-term historical standards and, accordingly, should support income creation, job growth, and household and business spending. Solid demand for our exports should also be a plus for growth. Although we expect a small increase in the unemployment rate, labor markets in general should remain healthy. Indeed, on balance, I would characterize the data we have received on the real economy since the last FOMC meeting as supporting our baseline forecast.

Mon, October 22, 2007
University of Chicago

With regard to inflation, we do not see any large movement one way or the other from current levels of core price inflation. Here the risks seem two-sided. With no appreciable slack in resource markets, cost pressures from higher unit labor costs, energy, or import prices could show through to the top-line inflation numbers. However, weaker economic activity would tend to mitigate the potential for this. ... At present, my outlook is for core PCE inflation to be in the range of 1-1/2 to 2 percent in 2008-09. Relative to our outlook six months ago, this is a favorable development.

Mon, October 22, 2007
University of Chicago

it is somewhat amusing how often we are tempted to say that things are more uncertain today than they usually are. Well, if we think this so often, it can't be very unusual.

Mon, October 22, 2007
University of Chicago

if in fact the more likely scenario unfolds in which conditions improve and risks recede, then policy should be prepared to respond to any developments that threaten the inflation outlook. Indeed, not all of the risks to the economic outlook are on the downside.

Tue, November 27, 2007
Futures Industry Association

Like the recent turmoil, each of these episodes had unique features. But there is an important common element to them—in each case, the event was associated with a drying up of liquidity. The most liquid assets are those that can be immediately used to discharge indebtedness: cash, bank reserves, and the like. When I say liquidity "dries up," I mean that market participants find it increasingly difficult to convert otherwise sound assets into these more liquid media of exchange. This would be the case if lenders are unwilling to accept the illiquid assets as collateral, or if dealers in these assets substantially widen bid-ask spreads, or if transactions in these securities simply cease to occur.

Tue, November 27, 2007
Futures Industry Association

Consider the unexpected bankruptcy in 1970 of Penn Central, a major railroad that was an important issuer of commercial paper. The Friday before its collapse, Penn Central was seen to be in financial trouble, but the company was expected to receive a government loan guarantee that would keep it afloat. Over the weekend, it became evident that no government support was forthcoming, and Penn Central declared bankruptcy. Investors woke up Monday morning with commercial paper that was essentially worthless. Penn Central's failure raised doubts about the integrity of the commercial paper market in general. A predictable flight to quality ensued: Treasury yields declined, and corporate debt yields rose.

The financial innovation in the Penn Central example was the use of commercial paper to substitute for bank loans. Commercial paper had become an important source of funds for large firms in the 1960s. But risk-management systems for commercial paper remained untested until the recession of 1969–70. The Penn Central bankruptcy was a rude awakening that these systems were inadequate.

Tue, November 27, 2007
Futures Industry Association

A third example is the market crisis in the fall of 1998 that was triggered by the Russian bond default. This shock caused bond spreads to widen in both emerging and developed countries and induced a major liquidity crisis. The financial innovation that magnified this shock was the growth of highly leveraged and opaque hedge funds, including Long Term Capital Management. The possibility that failing hedge funds would respond to falling market prices with a fire sale of available assets led intermediaries to withdraw liquidity from the market and reinforced the initial shock.

Tue, November 27, 2007
Futures Industry Association

Finally, our most powerful tool for addressing a liquidity crisis is monetary policy. In setting the stance of monetary policy, the Fed has a dual mandate: to help foster maximum employment and price stability. Monetary policy is concerned with mitigating financial market stress to the extent that the stress impedes fulfillment of this dual mandate. Broadly speaking, I see our response to a financial shock as similar to our approach for responding to other shocks to the economy: We gauge the most likely effects of the shock on the future paths for economic activity and inflation; we discuss less likely but more costly alternative outcomes that we may want to insure against; and, based on this analysis, we adjust policy to best fulfill our dual mandate.

Tue, November 27, 2007
Futures Industry Association

We clearly must be vigilant about these risks to economic growth. However, overly accommodative liquidity provision could endanger price stability, which is the second component of the dual mandate. After all, inflation is a monetary phenomenon. Indeed, one of the many reasons for the Fed's commitment to low and stable inflation is that inflation itself can destabilize financial markets.

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That is, the Fed must adjust the stance of policy to guard against the risk of events that may have low probability but, if they did occur, would present an especially notable threat to sustainable growth or price stability...  But while the risk is still present of notably weaker-than-expected overall economic activity, given the policy insurance we have put in place I don't see this as likely.

Tue, November 27, 2007
Futures Industry Association

In particular, we expect that later in 2008 economic growth will move close to its current potential, which we at the Chicago Fed see as being slightly above 2-1/2 percent per year.

Thu, February 14, 2008
Chartered Financial Analysts of Chicago

[O]ur outlook at the Chicago Fed is for real GDP to increase in the first half of the year, but at a very sluggish rate. However, we expect growth will pick up to near potential by late in the year and continue at or a bit above this pace in 2009.

Thu, February 14, 2008
Chartered Financial Analysts of Chicago

In assessing the extent of the current slowdown, I find it useful to look at an index we developed at the Chicago Fed in 2000 to summarize the information in a large number of monthly indicators of economic activity. The index is the Chicago Fed National Activity Index, or CFNAI. An index value of zero is consistent with trend growth in overall GDP. The three-month moving average of the CFNAI fell to -0.67 in December. A study I did back in 2002 suggests that readings like this indicate a greater than 50 percent probability that the economy is in a recession. Although there are reasons to discount this likelihood somewhat, it is clear that the U.S. economy currently faces substantial headwinds.

Thu, February 14, 2008
Chartered Financial Analysts of Chicago

I think it is important to remember that the Federal Reserve has a dual mandate — working to foster financial conditions that help the economy obtain maximum sustainable employment and price stability. As the Committee noted in the policy statement following the January FOMC meeting, though downside risks to growth remain, we think the policy actions taken in January, in combination with earlier moves, should help promote moderate growth over time and mitigate the risks to economic activity. We also expect that inflation will moderate over time. Looking ahead, my policy views will depend on the evolution of these risks, as well as how developments influence the price stability component of our dual mandate over the medium term.

Thu, February 14, 2008
Chartered Financial Analysts of Chicago

Greater caution on the part of businesses and consumers will likely limit increases in their discretionary expenditures. And the strains on credit intermediation and financial balance sheets will likely hold down growth to a degree for some time. Since these financial issues are being worked out against the backdrop of a soft economy, we also have to recognize the risk that interactions between the two might reinforce the weakness in the economy.

In response to these downside influences, and with inflation expectations contained, I believe a relatively accommodative monetary policy is appropriate. At 3 percent, the current federal funds rate is relatively accommodative and should support stronger growth. Indeed, because monetary policy works with a lag, the effects of last fall's rate cuts are probably just being felt, while the cumulative declines should do more to promote growth as we move through the year.

In addition, the fiscal stimulus bill the President signed yesterday will likely boost spending in the second half of the year.

Thu, February 14, 2008
Chartered Financial Analysts of Chicago

Although most of the recent concern about the U.S. economy has been focused on growth, we must also be mindful of inflationary pressures. The recent news here has been somewhat disappointing. We have experienced large increases in food and energy prices, and other commodity prices are high; in addition, we are hearing numerous anecdotes of firms passing on cost increases to their downstream customers... [I]f outsized increases in food and energy prices persist, then core becomes a less useful medium-term guide to inflation trends. Furthermore, persistent food and energy price increases will find their way into inflation expectations, which in turn would boost core measures. So the recent developments in food and energy prices are a concern that deserve careful monitoring. That said, our forecast is for inflation to moderate over the next two years.

Fri, February 29, 2008
U.S. Monetary Policy Forum

There is no analogy in financial markets to macroeconomic price stability. The prices of financial products may change quite substantially when new information arrives. Indeed, one of the most important activities of financial markets is price discovery—the efficient assimilation of all available information into asset values. This promotes the appropriate allocation of capital among competing demands and supports maximum sustainable growth. And it is this efficient functioning of markets that is our concern with regard to financial stability.

Fri, February 29, 2008
U.S. Monetary Policy Forum

The literature on asset bubble pricking is related to this discussion of excess risk-taking: Should a policymaker deflate a bubble before it becomes problematic? I am skeptical that we can identify bubbles with enough accuracy and know enough about how to act to say that we wouldn't have more failures than successes. ... [A]s former Chairman Greenspan [2004] noted, in order to make sure you burst a bubble, you have to attack it aggressively, because if your attack fails, it just gets bigger. And there are big risks to the real economy of making such large moves.

Fri, February 29, 2008
U.S. Monetary Policy Forum

I would now like to say a few words about the adequacy of our toolkit during periods of financial disruptions. We have several ways to add liquidity to the economy in addition to the normal open market operations: the discount window—extended to term borrowing and the new Term Auction Facility—and foreign exchange swaps to help enhance liquidity abroad. In these operations we accept as collateral assets that others see as less readily marketable. I do not think this adds undue risk since we only lend to qualified solvent institutions and the collateralization rates include appropriate haircuts on riskier assets. In addition, we sterilize the effects of the borrowings on aggregate reserves, so that the liquidity injections are done while maintaining the fed funds rate target. This keeps the funds rate at a level we see as consistent with achieving our announced policy goals.

Fri, February 29, 2008
U.S. Monetary Policy Forum

I would now like to say a few words about the adequacy of our toolkit during periods of financial disruptions. We have several ways to add liquidity to the economy in addition to the normal open market operations: the discount window—extended to term borrowing and the new Term Auction Facility—and foreign exchange swaps to help enhance liquidity abroad. In these operations we accept as collateral assets that others see as less readily marketable. I do not think this adds undue risk since we only lend to qualified solvent institutions and the collateralization rates include appropriate haircuts on riskier assets. In addition, we sterilize the effects of the borrowings on aggregate reserves, so that the liquidity injections are done while maintaining the fed funds rate target. This keeps the funds rate at a level we see as consistent with achieving our announced policy goals.

Fri, February 29, 2008
U.S. Monetary Policy Forum

Of course, even Taylor's research points out that periods of financial stress may require policy responses that differ from the usual prescriptions... The baseline outlook may be only modestly affected by the conditions, but there may be risks of substantial spillovers that could lead to persistent declines in credit intermediation capacity or large declines in wealth. These in turn would reduce business and household spending. In such cases, policy may take out insurance against these adverse risks and move the policy rate more than the usual prescriptions of the Taylor Rule.

Now if we took out such insurance too liberally or too often, then private sector markets would change their views regarding policy and alter their base level of risk-taking. But in doing so, we likely would observe inflationary imbalances emerging or unusual volatility in output. So part of our job as a central bank is to properly price these insurance premiums against the achievement of maximum employment and price stability over the medium term. Importantly, when insurance proves to be no longer necessary, removing it promptly and recalibrating policy to appropriate levels will reiterate and reinforce our commitment to these fundamental policy goals. And if we are transparent so that markets understand that we will adhere to this strategy, such insurance-based monetary policy will not encourage excessive risk-taking.

Wed, March 26, 2008
New York Association for Business Economics

Together these policy actions expand our role by providing liquidity in exchange for sound but less liquid securities. These policy innovations share important features of increasing both the term and the quantity of our lending and making additional quantities of highly liquid Treasury securities available to financial intermediaries. This is intended to reduce uncertainty among financial institutions and allow them to meet the liquidity needs of their clients.

While these policy actions represent major innovations in practice, they are in the spirit of the oldest traditions of central banking. As described by Walter Bagehot in his 1873 treatise Lombard Street, the job of the central bank is to "lend freely, against good collateral" whenever there is a shortage of liquidity in markets.

Wed, March 26, 2008
New York Association for Business Economics

In such cases, policy may take out insurance against these adverse risks and move the policy rate more than the usual prescriptions of the Taylor Rule. If the downside spillovers do materialize, then policy may have to be recalibrated further.

Part of our job as a central bank is to properly price these insurance premiums against the achievement of maximum employment and price stability over the medium term. And if further policy adjustments become necessary, they need to take into account the insurance that is already in place. In addition, when risks subside, promptly moving policy to appropriate levels will reiterate and reinforce our commitment to our fundamental policy goals.

Wed, March 26, 2008
New York Association for Business Economics

The risks to economic growth continue to be sizable on the downside. It's still premature to know what the severity of that might be, if that were the case.

From audience Q&A, as reported by Market News International

Wed, March 26, 2008
New York Association for Business Economics

Taking all of this into consideration, our outlook at the Chicago Fed is for weakness in real GDP this year, particularly in the first half of the year. However, we think conditions will improve in the second half of the year.

A number of factors will likely hold back activity for some time. The strains on credit intermediation and financial balance sheets mean that credit conditions will likely restrict spending. The large overhang of unsold homes will continue to restrain residential investment. Greater caution on the part of businesses and consumers will likely limit increases in their discretionary expenditures as well. Because financial issues are being worked out against the backdrop of a soft economy, we also have to recognize the risk that interactions between the two might reinforce the weakness in the economy.

Nonetheless, other factors point to improvement later in the year. We have lowered the federal funds rate by 300 basis points since September. At 2.25 percent, the current federal funds rate is accommodative and should support stronger growth. Indeed, because monetary policy works with a lag, the effects of last fall's rate cuts are probably just beginning to be felt, and the cumulative declines should do more to promote growth going forward.

The effects of the fiscal stimulus bill also are likely to boost spending in the second and third quarters of 2008.

Wed, March 26, 2008
New York Association for Business Economics

Productivity is the fundamental determinant of growth in the longer run—it determines how we can turn labor and capital inputs into the goods and services we consume and invest. The good news here is that, while it is not as robust as it was in the late 1990s and early this decade, the underlying trend in productivity in the U.S. economy is still solid. This trend provides a sound base for production and income generation to move forward over the longer haul.

Wed, March 26, 2008
New York Association for Business Economics

Although most of the recent concern about the U.S. economy has been focused on growth, we must also be mindful of inflationary pressures. The news here has been somewhat disappointing.

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That said, our forecast is for inflation to moderate over the next two years with a leveling out of energy and commodity prices and an easing of pressures on resource utilization due to the slower pace of economic activity. Still, our uncertainty about the inflation outlook has increased, and we will continue to monitor inflation developments very carefully.   

Wed, April 30, 2008
Chicago Fed Annual Report

A widespread shortfall in liquidity could cause assets to trade at prices that do not reflect these fundamental valuations, impairing the ability of the market mechanism to efficiently allocate capital and risk. Furthermore, reduced availability of credit could reduce both business investment and the purchases of consumer durables and housing by creditworthy households.

We clearly must be vigilant about these risks to economic growth. However, overly accommodative liquidity provision could endanger price stability, which is the second component of the dual mandate. After all, inflation is a monetary phenomenon. Indeed, one of the many reasons for the Fed's commitment to low and stable inflation is that inflation itself can destabilize financial markets.

Wed, April 30, 2008
Chicago Fed Annual Report

[W]e certainly cannot rule out the possibility of continued market difficulties. We cannot be sure how long it will take for financial intermediaries to complete the process of re-evaluating the risks in their portfolios and restructuring their balance sheets accordingly. Moreover, further mortgage defaults due to declines in house prices and the fact that many sub-prime adjustable rate mortgages will see their rates rise over the next few months could have negative feedbacks onto housing and financial markets. Furthermore, there remains a good deal of uncertainty about the creditworthiness of many key market participants.

Mon, May 12, 2008
Harper College Economic Forum

[A]t the Chicago Fed, our current analysis of them suggests that sustainable growth currently is somewhere in the range of 2-1/2 percent per year. Most other analysts' estimates fall in the 2-1/4 to 3 percent range.

Mon, May 12, 2008
Harper College Economic Forum

The neutral funds rate is the rate consistent with an economy operating at its potential growth path and with stable inflation. There are many factors and uncertainties involved in assessing the neutral rate. With such caveats in mind, I think the neutral long-run real fed funds rate is somewhere in the neighborhood of 2 to 2-1/2 percent.

Mon, May 12, 2008
Harper College Economic Forum

I think it is helpful at this point to note some similarities to the period following the recession of late 1990 and early 1991. You might recall that after the deregulation of the Savings and Loan industry, many S&Ls made imprudent real estate loans. The ensuing losses substantially reduced the lending capacity of the industry as insolvent S&Ls went out of business and others were forced to recapitalize. In addition, banks were reluctant to lend as they struggled to bring their capital in line with the then new risk-based standards set by the Basel I Accords. These restructurings created financial headwinds that made the recovery from recession frustratingly slow. In fact this period was later characterized as a "jobless recovery."

Today, banks again are recapitalizing after making imprudent loans; and again, they are doing so in the face of a sluggish economy. However, one key difference is that today much more overall lending activity is securitized. This has spread losses among a wider swath of financial institutions and has made it more difficult to quantify losses. As a result, we have seen a broader disruption of credit flows, even than those of the early 1990s. This suggests we may again be in for a period of weak growth.

Now let's consider the stance of policy. Today, the nominal funds rate is at 2 percent. In January, projections FOMC members made for PCE inflation in the medium term were in the range of 1-3/4 to 2-1/4 percent. This means the real fed funds rate is close to zero or perhaps slightly negative. Looking back at the early 1990s, the nominal funds rate bottomed out at 3 percent in 1992. Given the higher inflation expectations at the time, this also translated into a real funds rate that probably was close to zero—just like today.

In normal times, a real funds rate near or below zero would be considered highly accommodative. However, then, as now, the boost to aggregate demand from the accommodative funds rate was offset to some degree by financial market turmoil. Because we think the disruptions today are more significant than in the early 1990s, this offset also is larger today. In contrast, today we have in place the various additional measures that provide extra liquidity. No such facilities were in place in the early 1990s. It is difficult to weigh the various factors. But with this difficulty in mind, and given my reading today of economic prospects, my judgment is that the current net stance of monetary policy is accommodative—and this is appropriate in order to address the way we currently see the sluggish economy unfolding in 2008. I also believe that the current stance roughly balances out substantial risks to the outlooks for both growth and inflation—which I see as being to the downside for growth and to the upside for inflation.

Mon, May 12, 2008
Harper College Economic Forum

Summing all of these factors, we think conditions will improve in the second half of this year, but not enough to prevent economic activity from still running at a relatively sluggish pace. We expect real GDP growth will return close to potential as we move through 2009.

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Regarding the outlook for inflation, we project improvement over the medium term, with core inflation in the range of 1-1/2 to 2 percent by 2010. This forecast assumes that the resource slack being generated by the current weakness in the real economy will work to offset the cost pressures from higher energy and commodity prices ...

Our forecast also assumes—in line with current readings from futures markets—that energy and commodity prices will stabilize some time over the medium term.

Tue, May 13, 2008
ACCION Chicago Annual Partnership Event

Slower income growth, falling consumer sentiment, higher food and energy prices, lower housing and equity wealth, and tighter credit conditions are all restraining household spending, and are likely to do so in the near term.

Tue, May 13, 2008
ACCION Chicago Annual Partnership Event

Looking ahead, our outlook at the Chicago Fed is for continued weakness in real GDP over the near term. Activity is likely to remain weak for a number of reasons. Strains on intermediation and financial balance sheets mean that credit conditions will likely continue to restrict spending for some time. Businesses and consumers could limit their discretionary expenditures because of caution over the economic environment. And housing continues to be a downside factor. The unsold inventory of homes will continue to restrain residential investment, and it will take time for this overhang to unwind.

However, eventually the cumulative adjustments in house prices will bring more buyers into the market and activity will stabilize. While we don't expect any significant contributions to growth from residential construction for some time, the drag from the sector ought to at least diminish as we move through the rest of this year and next. Similarly, as financial market participants revalue portfolios and repair their balance sheets, the drag from credit conditions ought to diminish over time. Furthermore, even given the financial turmoil, the stance of monetary policy is accommodative and supportive of growth. Productivity growth, although below the lofty rates enjoyed in the late 1990s and earlier this decade, is still solid. Finally, the effects of the fiscal stimulus bill are likely to boost spending in 2008.

Tue, May 13, 2008
ACCION Chicago Annual Partnership Event

[T]he level of uncertainty regarding future developments continues to be high and the path forward may be uneven. We must keep this in mind as we evaluate the outlook. I am confident that policymakers will continue to respond to future unexpected changes in the environment for growth and inflation as needed in order to promote sustainable growth and price stability.

Fri, August 15, 2008
McLean County Chamber of Commerce

Some have taken comfort in the fact that inflation has not yet been built into wage growth as evidence that inflationary expectations have not risen. But I am less sanguine because research indicates that by the time we have statistical confirmation that wages are increasing at rates higher than the rate of growth of productivity, a persistent rise in inflation most likely would already be in train.

Fri, August 15, 2008
McLean County Chamber of Commerce

It has become increasingly clear to me that the fed funds rate alone is neither an adequate nor even an entirely appropriate tool for addressing instability in the financial markets. Further reductions in the fed funds rate could help provide additional liquidity to financial markets as a whole, but not necessarily to the most distressed portions of the market. And, in principle, if pushed too far, excess policy accommodation over an extended period of time would risk igniting inflation expectations. However, the ongoing challenges in financial markets indicate the continued need for substantial liquidity in order to facilitate their functioning and to ensure adequate funding for creditworthy businesses and households.

Fri, August 15, 2008
McLean County Chamber of Commerce

The current monetary policy environment is even more complicated than usual. If we were using battlefield language to describe our situation, this would be a "three-front conflict." Although real activity is weak, we also are simultaneously experiencing bad news on the inflation front in the form of higher energy and commodity prices. This creates the challenge of facilitating the economy's return toward more favorable growth rates without igniting greater inflationary pressures. The financial turmoil and subsequent tightening of credit conditions add another dimension of difficulty to the problem.

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I think the risks for growth have increased and the risks for inflation remain elevated and a concern....I see real GDP growth returning near potential by 2010—somewhere in the range of 2-1/2 to 3 percent....I think inflation should moderate over the medium term, with PCE headline inflation declining to around 2 percent by 2010.
...

Our 325-basis-point cumulative cut in the funds rate was larger than we otherwise might have done in order to insure against the unlikely event of a severe downturn. That said, even though I think the current 2 percent funds rate is accommodative, it is not especially stimulative. This is because the financial market turmoil has meant that our funds rate reductions have led to less credit expansion to households and businesses than typically would be the case.

Fri, September 19, 2008
Swiss National Bank Conference

To answer all of these challenging questions, it will be extremely useful to seek a more unified perspective of the role of financial frictions in modern macroeconomic models. In this way, we will be able to identify the independent roles of our traditional monetary policy tools and our new lending facilities, as well as the interaction between the old and new tools. Developing these models is up to the research community—from the research shops at central banks to academic departments to independent think tanks. And we policymakers are eagerly awaiting the results.  

Mon, October 06, 2008
Association for Manufacturing Technology

(O)ne reason for the increased risk to inflation is the surge in commodity prices, particularly energy. Another has been high food prices. However, even excluding food and energy, so-called core inflation for personal consumption expenditures was up to 2.6 percent (year-over-year) in August. This rate is too high.

Fri, October 17, 2008
Fond du Lac Area Association of Commerce

Over the past year, we have witnessed the deteriorating performance of mortgages and mortgage-backed securities spill over to other segments of our financial markets. Market participants have reassessed the risk profiles of other similarly structured assets, and prices of these securities have declined as well. This cascading process of re-pricing has had a detrimental impact on liquidity and capital positions in a wide range of financial institutions and markets in the United States and around the world.

Fri, October 17, 2008
Fond du Lac Area Association of Commerce

Core inflation for personal consumption expenditures was up to 2.6 percent (year-over-year) in August. In my opinion, this rate has been high...Although some risks to the inflation outlook remain, a forward-looking assessment would put less weight on inflation concerns than earlier this summer.
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The outlook for real economic activity likely will result in production, spending, and labor markets being very sluggish in the second half of this year and well into 2009. I expect that such activity will then pick up as the housing and financial markets gain headway in working through their problems. Such progress would be signaled by stabilization in construction and improvement in credit flows.
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There is, of course, a level of cloudiness in any economic forecast. In the current situation, the substantial stress in the financial markets has led to an unusually high degree of uncertainty. This is because it is extremely difficult to assess how the turmoil will influence markets and how policy responses to address the economic unrest will play out over time...We at the Federal Reserve continuously reevaluate the stance of monetary policy in light of current and forecasted conditions, as well as our assessments of the risks to our long-term objectives of maximum sustainable growth and price stability. Currently, these risk assessments must factor in the substantial uncertainties in the outlooks for growth and inflation that I just described. These uncertainties certainly pose difficult challenges for policymakers.

Fri, November 21, 2008
Economic Club of Indiana

At this time it is very difficult to judge how long the downturn might last and how deep it ultimately will be. As financial markets work through their problems—with important help from government policy—and credit flows improve, we will see a return of growth in spending, production, and employment. But given the magnitude of the problems that we face, we could see activity remaining quite sluggish through much of 2009.

Sat, January 03, 2009
Allied Social Science Association

The Federal Reserve has undertaken policy actions of historic proportion. We have aggressively cut the federal funds rate, our traditional policy lever. We have also created multiple new lending facilities and transformed the asset side of our balance sheet. And, going forward, we will be expanding nontraditional policies now that the fed funds rate is approximately zero. Accordingly, we are faced with the challenge of calibrating these unfamiliar policies and, in the future, determining the appropriate time and methods for winding them down.

Sat, January 03, 2009
Allied Social Science Association

While we at the Fed pride ourselves on always conducting extensive, thorough analyses of all economic issues, our efforts to analyze the current situation and design appropriate policy initiatives are probably unprecedented in scope. But policymakers face another very important challenge: In a complex and dynamic environment, the public needs effective and transparent communications. As our lending facilities and other policy responses continue to evolve, this is a daunting task.

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I think the communications response must be to "never give up." We need to work very hard to explain the risks that we are facing and the rationale for why we think our policy actions best address those risks. As I alluded to earlier, much digital ink has been spilled in these attempts so far. More is on the way. If ink were fiscal stimulus, we might see a more rapid economic recovery in 2009.

Sat, January 03, 2009
Reuters News

Evans said that based on the outlook for rising unemployment, falling industrial production and a wider output gap, economic models suggest rates should be below zero.

"If it were not constrained by zero, those models would want to push it below zero, but that's not possible," Evans told reporters after a panel at the American Economic Association's meeting in San Francisco.

Quantitative easing, a way to flood the banking system with large amounts of money, "is a way to mimic below-zero rates and provide support to the economy," he said.

As reprted by Reuters.

Sat, January 03, 2009
Allied Social Science Association

(P)ublic policy responses have increasingly moved toward fiscal interventions. To date, these have mostly been aimed at improving market functioning: the Treasury's TARP program, FDIC guarantees, and the Hope for Homeowners Act, and other programs to re-work mortgages. Looking ahead, we expect large amounts of more traditional types of fiscal stimulus to increase aggregate demand. I believe a big stimulus is appropriate. But it is also sobering to be deploying large amounts of tax-payer funds at a time when our fiscal balance sheet is already coming under significant stress

Thu, January 15, 2009
Wisconsin Bankers Association

I expect real GDP to decline for 2009 as a whole and to rise at a pace in the neighborhood of potential growth during 2010. However, this growth will not be strong enough to close the resource gaps emerging over this period. Indeed, the unemployment rate—the main resource gap measure in the labor market—is likely to rise into 2010.

Thu, January 15, 2009
Wisconsin Bankers Association

In another joint program, the Federal Reserve and the Treasury established the Term Asset Liability Fund, or TALF.

Thu, January 15, 2009
Wisconsin Bankers Association

Yet, undoubtedly, the greatest challenge we face is the enormous uncertainty of our situation. One great feature of being an economist in Chicago is that we benefit from the wisdom of many distinguished scholars at our local universities. An example of such wisdom is an observation made long ago by Robert Lucas, a Nobel Laureate from the University of Chicago: "As an advice-giving profession, we economists are in way over our heads." At any time, this is a sobering and humbling thought to remember. Nevertheless, in the current environment, the pursuit of a range of robust policies in the face of large uncertainties is likely to be most efficacious. A good decision-maker can't place all of his or her policy bets on a single hypothesis when the evidence is still ambiguous.

Thu, January 15, 2009
Wisconsin Bankers Association

(A)t a time when near-term inflation is likely to be lower than usual, having an explicit numerical objective for inflation could help keep inflation expectations from falling very far. Such an anchor on inflation expectations would help preserve low real inflation-adjusted interest rates.

Wed, February 11, 2009
CFA Society of Iowa

Over the longer-run, with appropriate monetary policy, I see both overall and core inflation averaging somewhere into the neighborhood of 2 percent, which is a rate I see as being consistent with price stability. That said, there is notable risk that inflation will remain a good deal below this range in the medium term.

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[A]t a time when near-term inflation is likely to be lower than usual, endorsing an explicit numerical objective for inflation could help keep inflation expectations from falling very far. Such an anchor on inflation expectations would help preserve low real inflation-adjusted interest rates.

Wed, February 11, 2009
CFA Society of Iowa

I'm not tremendously concerned about deflation.

In comments to the press, as reported by Bloomberg News

Wed, February 11, 2009
CFA Society of Iowa

(M)arket disruptions clearly remain, and most spreads between private lending rates and comparable-maturity risk-free government debt are still quite elevated relative to where they were before the crisis. Of course, we would not expect spreads and other lending terms to return to those prevailing before the crisis—a period when risk was clearly underpriced. Nevertheless, current spreads and terms seem to be well above where the "new normal" will end up.

Wed, February 11, 2009
CFA Society of Iowa

I should also note that, as conditions warrant, we will be expanding existing programs. In addition, we are considering the purchase of longer-term Treasury securities, if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets.

Evans later expanded on this point to reporters:

Evans said the Fed should wait to see the results of its emergency credit programs before deciding whether to buy long- term Treasuries to lower yields. "There is still a lot of work that needs to come on line," Evans told reporters. "Frankly, for myself, I want to see how that is playing out."

As reported by Bloomberg News

 

Thu, February 19, 2009
Rockford Chamber of Commerce

One way that monetary policy influences financial and economic activity is through the clarity of our intentions and communications. Expectations of likely future outcomes, including those for monetary policy, obviously matter for decisions made by households and businesses today. In this vein, at a time when near-term inflation is likely to be lower than usual, endorsing an explicit numerical objective for inflation could help keep inflation expectations from falling very far. Such an anchor on inflation expectations would help preserve low real inflation-adjusted interest rates.

Tue, March 24, 2009
Czech National Bank

One way of thinking about these developments is that markets have become highly segmented. We do not see funds flowing in to take advantage of apparent profit opportunities with respect to distressed assets. If they were, they could ease liquidity pressures in these sectors and help keep some problems from spilling over into solvency concerns.

Tue, March 24, 2009
Czech National Bank

Since August 2007, the FOMC's policy decisions have been calibrated to deal with the "adverse feedback loop" between disruptions to financial market stability and the real economy. This focus has influenced not only the setting of the funds rate, but also the implementation of several new policies aimed directly at the financial shocks, some of which I have discussed today.

I believe these initiatives will help in restoring the normal functioning of the financial system. They will also have a stabilizing effect on markets around the world and will therefore eventually help stimulate worldwide economic recovery.

Mon, June 15, 2009
Executives' Club of Chicago

Taken as a whole, our nontraditional policies might look like a vast array of acronyms—the famous "alphabet soup" (TSLF, PDCF, etc.). But there is a method to the madness, and I will highlight three precepts that guide our thinking. The first is insurance: Don't put all your eggs in one acronym. The second is innovation: This is not your grandfather's Fed. And the third is size: In an environment of great uncertainty, as we like to say in Chicago, "make no little plans."

...
Rather than rely on any single tool lest it prove inadequate, we have put in place a number of different remedies in quick succession, in the hope that we may learn which ones work best without losing valuable time.

Mon, June 15, 2009
Executives' Club of Chicago

Admittedly TALF has generated two opposite concerns: one is that our credit requirements are too conservative and unlikely to fund large volumes; the other is that the central bank is taking too much credit risk on its balance sheet. I think we have struck a good balance between these concerns.

At this point we see evidence that TALF is working as intended. Spreads on asset–backed securities have come down. And while much of the recent ABS issuance has been supported by TALF loans, some institutional investors are re–entering these markets without that support.

I think this {to expand the TALF program} aggressive move was appropriate considering the many risks we were facing, the direness of some forecasts, and the uncertainty surrounding our new tools. Future developments will help us determine if our actions to date have been too much, too little, or just right.

Mon, June 15, 2009
Executives' Club of Chicago

I expect to see further deterioration in some areas, notably job market conditions, before our policies gain full traction. Weak economic news by itself would not imply that we have misjudged the size of our latest actions. In my view, it would take a significant deterioration relative to our outlook for me to view our current policies as inadequate.

Mon, June 15, 2009
Executives' Club of Chicago

[T]he possibility that the economy is close to a turning point is stronger now than just two months ago. Financial market spreads have improved even as long Treasury and mortgage rates have increased. And disinflationary pressures have been weaker than we had feared.  Part of rightsizing will be to decide where boldness ends.

Currently, with core inflation near 2 percent, I see inflation at a level that would be acceptable under normal circumstances. But these two potentially strong forces work in opposite directions {inflationary and deflationary}, and the Fed must be in a position to respond, whichever force dominates.

Mon, June 15, 2009
Executives' Club of Chicago

[A] significant portion of our balance sheet may not shrink on its own or at the appropriate rate. We need tools to reduce it actively so that monetary policy can be easily recalibrated. In this respect, we can be as creative on the way out as we were on the way in; or, put another way, we can be creative with our liabilities the way we have been creative with our assets.

Wed, July 01, 2009
European Economics and Finance Centre Seminar

I do believe that we can do a much better job of preventing (albeit, not entirely avoiding) crisis situations and I believe we can be better prepared to address them when they do occur. Much of the current policy discussion on the need for some form of a systemic risk regulator and improved resolution process is most appropriate and should be thoroughly vetted. Both ideas are included in President Obama's regulatory reform proposal that was recently sent to Congress. Obviously, there are a number of details to be addressed, but I hope we can grasp the moment and not let the opportunity to implement meaningful reform pass.

Wed, July 01, 2009
European Economics and Finance Centre Seminar

The recent financial crisis also revealed new dimensions of the TBTF problem. The systemic risk exception applies only to commercial banks. But recently there have been significant issues regarding the systemic implications from the failure of large nonbank financial firms. Significant problems in the U.S. have occurred surrounding investment banks, and similar concerns are being expressed about insurance companies and hedge funds. There are also issues regarding the relationships between banks and their parent holding companies.

Wed, July 08, 2009
Chamber of Commerce of St. Joseph County

Currently, core inflation is near 2 percent, a level I generally find acceptable. In the near term, I think the downward forces on inflation will be greater than the upward forces, and we could see some declines in core inflation. But over the medium term I see the risks to the inflation forecast as being more balanced.

Wed, July 08, 2009
Chamber of Commerce of St. Joseph County

[T]here have been some favorable developments of late, and the possibility that the economy is closer to a turning point is stronger now than just three months ago. Although the data have been uneven, our reading of the recent indicators is that the pace of contraction is slowing and that activity is bottoming out. We expect modest increases in output in the second half of this year followed by somewhat stronger growth in 2010.

Wed, July 08, 2009
Chamber of Commerce of St. Joseph County

[F]irms are still reluctant to hire, and the unemployment rate reached 9-1/2 percent in June and will likely further increase through the remainder of the year before it flattens out in 2010.

Wed, September 09, 2009
Council on Foreign Relations

In brief, I think neither a harmful deflationary episode nor a repetition of the Great Inflation is very likely.  Stimulative policies combined with the economy's resilient market forces will, over time, reduce resource gaps.  Deflation has been averted.  And as the economy continues to improve, and when we see rising inflation pressures, Fed policy will respond aggressively.

Wed, September 09, 2009
Council on Foreign Relations

Similar to other important economic forces—like the output gap—the lack of observability and difficulty in measuring inflation expectations represent a powerful challenge for monetary policymakers. Here is how I approach the issue. Initially, we can attempt to directly assess each important force for future inflationary pressures. This approach could construct a risk assessment for inflation pressure indicators and would include all of the factors cited above, at a minimum, along with an assessment (or weighting) of their importance.8

Wed, September 09, 2009
Council on Foreign Relations

Over the past year, the monetary base has nearly doubled as the Fed has rapidly expanded its balance sheet. But, given the sluggish growth in bank credit, broader money has risen much less—by only around 8 percent. So, we'll need to see much more expansive bank lending if the monetary base expansion is to trigger an inflation response. And we have yet to see this happen in the current economic downturn.

Wed, September 09, 2009
Council on Foreign Relations

Recent studies done at the Chicago and San Francisco Feds find little evidence that sectoral reallocation or other factors are increasing the unemployment rate or reducing measured output gaps on a very large scale.16 So I believe that resource gaps remain substantial today. That's a significant mitigating factor against inflation pressures.

Fri, September 11, 2009
Conference on Successful Strategies for Financial Literacy and Education

[W]hen individuals have a better understanding of financial and economic concepts, it is easier for them to appreciate the role of the Federal Reserve and the benefits of the Fed's independence when it comes to monetary policy. When you don't understand what inflation is or the risk that it presents to your financial well-being, then it is difficult to appreciate the importance of a Federal Reserve that can take politically unpopular steps to combat inflation.

Thu, September 24, 2009
International Banking Conference

While recent events have indeed imposed significant costs on society, I fear that monetary policy tools may be too blunt for such a fine-tuning policy.5 Central bankers have imperfect information, and for many asset classes, sudden price declines may have minimal impact on the real economy.6 So, my concern is that using monetary policy to "lean against bubbles" could end up causing more harm to the economy than good.

See Dudley's comments on asset price targeting.

Thu, September 24, 2009
International Banking Conference

In normal times, we use our policy instrument, the short-term federal funds rate, to try to achieve our dual mandate goals of maximum sustainable employment and price stability. Adding a third target—asset prices—would likely mean we couldn't do as well on the other two.

Thu, September 24, 2009
International Banking Conference

In my view, redesigning regulations and improving market infrastructure offer more promising paths to increased financial stability. This is the "prevention" that forms the first line of defense in our efforts to never be in this position again. Regulation may or may not be sufficient to avoid all of the market events that help to create excessive exuberance, but it should play a very large role in controlling the existence, size, and consequences of any bubble.

Fri, November 13, 2009
Banque de France

I agree that the severity of the recent crisis argues against simply waiting and mopping up after the fact if and when the prices of some assets do collapse. But the type of proactive response by a central bank that I envision is not well captured by the expression "leaning against a bubble." I prefer to see policy reacting to apparent exuberance in asset markets and the problematic risk exposure this could create, rather than initiating action out of a strong conviction that these particular assets are overvalued. In addition, the expression "leaning against a bubble" evokes polices that are aimed at achieving some targeted decline in asset prices. In contrast, I view the goal of intervention as insuring that exuberance in asset markets does not ultimately threaten the financial system or contribute to financial distress.

...

At this point, I think that regulatory policy provides the most promise. For one, it is important to improve resolution procedures for financial institutions in the event of insolvency...

...

At the same time, maintaining financial stability is also likely to involve more-proactive ...  policies that vary with economic conditions. For example, when faced by several indications that asset markets may be exuberant, we might consider increasing capital requirements...

 ...

I should note that some policymakers have recently expressed openness to the notion of leaning against bubbles. The proposals I just outlined are not out of scope with some of their thinking. This is because they, too, often give regulatory policy a prominent role

Fri, November 13, 2009
Banque de France

My outlook is for roughly 3 percent (GDP growth) over the next 18 months. That’s positive but modest after this downturn. Unemployment will be high. The combination of very large slack with stable inflation expectations leads me to an inflation outlook which is on the order of 1.5 percent core for the next few years, for the next two years at least.

With that environment, I’m underlying what my own guideline is for price stability. I’d say that’s 2 percent.  With that, policy is likely to continue to be appropriate for 2010 and most likely beyond.

Unless there are unusual developments, I think the policy is going to be highly accommodative, as it is now, for quite some period of time.

From comments to the press, as reported by Bloomberg News

Fri, November 13, 2009
Banque de France

What I’ve come to appreciate far better now after having had discussions, is that we have interest on reserves we can pay in the U.S.  That’s a relatively new tool.  Our initial experience in fall 2008 was not exactly perfect.  I think interest rates on excess reserves is one way to inject additional restraint on policy. 

You can do that even with a very large balance sheet.  We’d be learning about the effect of this tool.   We can do reverse repurchases.  We can sell assets. We can always do that. 

I’m confident that we can shift to a more restrictive policy when the time is approaching.  Presumably that’s an extended period beyond where we are now.

From comments to the press, as reported by Bloomberg News

 

Wed, January 13, 2010
Corridor Economic Forecast Annual Meeting

“Our ‘extended period’ language indicates that’s some substantial number of meetings,” Evans told reporters today after a speech in Coralville, Iowa. “I have said before that’s at least three or four meetings away.” The Federal Open Market Committee’s fourth meeting of 2010 is scheduled for June 22-23.

Thu, March 04, 2010
CFA Society of Chicago

I see a number of benefits to making similar macroprudential stress tests routine. Such horizontal cross-bank reviews of balance sheets and risk exposures can identify potential systemic risks that might escape an institution-by-institution analysis. Furthermore, they provide a ready way for supervisory reviews and actions to respond to the latest information on macroeconomic developments. In addition, going forward, we might consider dynamic capital standards that would require banks to build their capital base during periods of strong economic growth and high bank profitability, and let banks draw down their capital cushions during downturns when profits and capital tend to be more scarce.

Tue, March 09, 2010
NABE Policy Conference 2010

Pressed by reporters, Evans said he was "quite comfortable" with the current Fed policy language that rates can stay low for an "extended period." He said this translates into steady policy for 3 or 4 meetings or roughly six months.

As reported by MarketWatch

Tue, March 09, 2010
NABE Policy Conference 2010

For me, price stability is 2 percent inflation as measured by the Personal Consumption Expenditures (PCE) deflator over the medium term.

Tue, March 09, 2010
NABE Policy Conference 2010

The usual starting point for thinking about this issue is Okun’s famous “law” relating gross domestic product (GDP) growth to the change in the unemployment rate. The usual estimates of Okun’s law imply that the unemployment rate should be at least a percentage point lower than the 9.7 percent we actually saw last Friday.

However, this calculation assumes that the association between economic activity and the unemployment rate does not vary across the business cycle. In fact, many employment indicators tend to deteriorate faster during recessions than they improve during expansions. A simple statistical model that uses the historical relationship between GDP growth and unemployment estimated only during recessions can actually account for the sharp rise in the unemployment rate.

Wed, March 24, 2010
People's Bank of China news briefing

I would expect [that the accommodative interest rate stance] will hold for the next three or four meetings, that’s about six months.  I won’t be surprised if it carried into 2011.

Tue, March 30, 2010
U.S. Consulate General in Hong Kong

I already mentioned that I am skeptical about using monetary policy to control financial exuberance. But without supervisory powers, there may be no choice.

Mon, April 19, 2010
Federal Reserve Bank of Chicago

It depends on the state of the economy... If the economy were to change very, very quickly, I would be delighted, and we would respond appropriately. But given the long period of higher-than-desired unemployment, I would expect that policy would continue to be accommodative for quite some time.

Thu, May 06, 2010
Federal Reserve Bank of Chicago

I've said 3 to 4 meetings, six months, [for the likely duration of the "extended period" language] depending on circumstances changing in a big way. Everytime we get to the point where we make a decision like that I look forward and go, 'I think we still need accommodative policy for some time.'

I don't look at it in terms of what that means 18 months ahead because I don't think that's essential for the current policy forward language," he added.

Fri, May 14, 2010
Wesleyan University Associates Business Luncheon

Currently, policy is, appropriately, very accommodative.  But, eventually, we will have to return to a more normal stance. Judging the appropriate timing and pace for reducing accommodation poses a significant challenge for policymakers over the next couple years. On the one hand, removing too much accommodation prematurely could inhibit the recovery. On the other hand ... if the Fed leaves the current level of accommodation in place too long, inflationary pressures will eventually build.

Tue, June 01, 2010
Bank of Korea

[I] wouldn't be surprised [if the Fed's policy of keeping rates low] gets extended just a little bit.

Tue, June 08, 2010
University Club of Chicago

Currently, policy is, appropriately, very accommodative. But, eventually, we will have to return to a more normal stance. Judging the appropriate timing and pace for reducing accommodation poses a significant challenge for policymakers over the next couple years.

Tue, June 08, 2010
University Club of Chicago

How will recent events in Europe affect the U.S. economy?

There are a few channels through which the European sovereign debt problems could influence us here. European efforts to lower debt will likely weigh on their economic growth over the medium term. This will translate into less demand by Europeans for U.S. products. In addition, the dollar already has appreciated relative to the euro. This means that European consumers find our products to be relatively more expensive than before. At the same time, prices for European goods in terms of the dollar have fallen, boosting our demand for European imports. All of these channels work in the direction of lowering U.S. net exports, which, all else being equal, would tend to reduce the outlook for U.S. GDP growth.

However, a couple of factors suggest that these trade effects of the European fiscal situation on the U.S. economy are likely to be limited. Although the euro-11 economy is large, it represents only about 15 percent of U.S. exports...

Nonetheless, if events in Europe evolve so that they have a more severe and broad impact on financial markets, then the scope of the problems for the U.S. could be magnified. Fortunately, our direct exposure to European debt is limited. But an intensification of liquidity or solvency problems in Europe and some related spillover losses in U.S. markets could cause a marked increase in investor risk aversion. More lenders could pull back on intermediation, restricting the flow of credit to fund worthy spending projects of U.S. firms and households.

Wed, June 30, 2010
CNBC Interview

We've done a lot in terms of monetary policy. We continue to look at the options in either direction, but I am wary of how effective [further asset purchases] would be at this juncture.

Tue, August 24, 2010
Indianapolis Neighborhood Housing Partnership Community Breakfast

I am increasingly uncomfortable with the lack of noticeable improvement in the labor market... I am probably marking down my 2010 [economic growth] forecast.

Wed, September 01, 2010
Summit on REO and Vacant Property Strategies for Neighborhood Stabilization

The public policy response to the housing market collapse has become increasingly aggressive as the severity and extent of the collapse have become clearer. One might expect lenders to modify mortgages, making them more affordable for borrowers, rather than accepting large losses on foreclosed properties. However, for various reasons, the number of modifications has been lower than we might have hoped.

Fri, September 03, 2010
Public Policy Symposium on OTC Derviatives Clearing

[M]aking financial reform work will not be easy. We face complex problems that will require a comprehensive, multipronged approach. But make no mistake; reform is critical for ensuring our long-term economic and financial stability. And much of that reform will address the implications of the increasing interconnectedness of the global payment, clearing and settlement infrastructure that supports financial market operations today.

Thu, September 23, 2010
Federal Reserve Bank of Chicago

As we have seen during the recent global crisis, the interconnectedness of financial markets goes beyond our domestic borders. It is obvious that we need to do a better job of identifying cross-border linkages and their associated risks. Greater coordination across regulatory frameworks could be tremendously helpful in this effort.

Fri, October 01, 2010
Bank of France Conference

The size of the unemployment gap, combined with the fact that inflation has been running below the level I consider consistent with long-term price stability, suggests that it would be desirable to increase monetary policy accommodation to boost aggregate demand and achieve our dual mandate.

Tue, October 05, 2010
Wall Street Journal Interview

[T]he current circumstances are really extraordinary. It seems to me if we could somehow get lower real interest rates so that the amount of excess savings that is taking place relative to investment needs is lowered, that would be one channel for stimulating the economy. That could be done through communication. I take our price stability mandate to be 2% inflation. We’re not at 2%. I foresee 2012 inflation as 1%. If we could indicate to the public that we want inflation to increase toward that price stability goal, that would serve to lower real interest rates given that short-term nominal interest rates are close to zero. Thinking about the fact that we’re running below our inflation objective and what it might mean to make up some part of that somewhere along the line, that would also give rise to lower real interest rates. Convincing the public that this is what we intend to do, that could be a useful tool.

Question:  New York Fed President William Dudley talked about making up lost ground on inflation later. You support that?

Evans: That is a potentially useful policy tool at this point and I definitely think we should study that more. That comes out of the literature.

 

Tue, October 05, 2010
Wall Street Journal Interview

I think we’re in a liquidity trap where there is excess savings, greater than investment. It would take a lower real interest rates to address that.

But, look, if the right thing to do for the macro economy is to have lower interest rates but that comes with some risk for the financial system, we’ve only got one monetary policy tool and we have to focus on our mandate. But we have other supervisory tools which are supposed to  address emerging risks in financial markets. I think they have to be used.

Tue, October 05, 2010
Wall Street Journal Interview

Question:  What is your view of the James Bullard (St. Louis Fed president) approach to asset purchases, the idea of some kind of state contingent asset purchase program, as opposed to some kind of shock and awe type program?

Evans: I’m favorably disposed toward the approach that Jim has mentioned… I just think that far more accommodation is required.

Fri, October 15, 2010
Federal Reserve Bank of Boston

In my opinion, much more policy accommodation is appropriate today.

Tue, October 19, 2010
Evanston Civic Leaders Breakfast

These rare occasions of liquidity traps are very different from typical economic recessions. Consequently, they require a unique monetary policy response. Economic theory tells us that in such circumstances monetary policy should aim to lower the real, or inflation-adjusted, rate of interest by temporarily allowing inflation to rise above its long-run path. My preferred way of doing so is to implement an approach called price-level targeting. Simply stated, under this approach, the central bank strives to hit a particular price-level path within a reasonable period of time. For example, if the rate of change of the price-path is 2 percent and inflation has been under-running the path for some time, monetary policy would strive to “catch-up” so that inflation would be higher than the inflation target for a time until the path was regained. This higher inflation rate would decrease the real interest rate, raising the opportunity cost of holding money. This would provide an incentive for banks and corporations to release funds for investment, and in the process spur job creation.

In my opinion, such a strategy is entirely appropriate.

Fri, January 07, 2011
Allied Social Science Association

Evans said that, even if it was only charged with maintaining price stability, the fact that the Fed is "undershooting" its inflation target "dictates a highly accommodative policy." Arguing that "substantial accommodation" is warranted, he said the so-called Taylor Rule would call for the federal funds rate to be cut to minus 4% under current circumstances were it possible.

As reported by MarketNews

Thu, February 17, 2011
Rockford Chamber of Commerce

To put it bluntly, with unemployment too high and inflation too low — and both forecasted to stay that way over the next two years — we have missed on both of our policy objectives. There is currently no policy conflict between improving the employment and inflation outcomes. This leads me to conclude that accommodative monetary policy continues to be beneficial for achieving each of these goals.

Tue, February 22, 2011
Financial Times

The message that comes out of what I think of as high-quality research on this subject is that policy ought to remain accommodative for really quite a while, even a while after conditions start to improve.

Fri, March 25, 2011
Federal Reserve Bank of Chicago

"Each quarter, there seems to be more momentum going into our last FOMC meeting," said Evans, who votes on the Federal Open Market Committee this year. ‘‘I personally don’t see as many needs for a further amount as I probably thought last fall. Last fall, I thought 600 was a good start and we would evaluate conditions at the appropriate time."

Mon, March 28, 2011
Darla Moore School of Business, University of South Carolina

“It could be that $600 billion is just about the right number,” Evans said to reporters before a speech in Columbia, South Carolina. “I won’t be surprised if that in fact is the decision. I still think it is a high hurdle to stop short of $600 billion. So far I haven’t seen it."

Mon, April 04, 2011
CNBC Interview

It’s quite likely that $600 billion could be about the right number.  I thought going into the asset-purchase program that we might need to do more than $600 billion eventually, but $600 billion was a good start.

Fri, April 15, 2011
20th Annual Hyman P. Minsky Conference

“I’ll be surprised if I’m advocating a tightening in policy” this year, Federal Reserve Bank of Chicago President Charles Evans said. “I certainly think strong policy accommodation continues to be appropriate because the unemployment rate is 8.8% and inflation continues to be low, certainly on an underlying basis,” the official said.

He added “as long as year-over-year underlying inflation, core inflation, is 1.5% or lower, I am extremely doubtful we need an adjustment in monetary policy.” He noted 2% is where he believes inflation should be, and explained “as we get up toward 2%, we would want to make some adjustments to policy.”

As reported by Dow Jones

Fri, April 15, 2011
20th Annual Hyman P. Minsky Conference

[W]e’re underrunning both our inflation objective and our employment objective—both call for monetary policy accommodation.

 

Fri, April 15, 2011
20th Annual Hyman P. Minsky Conference

[E]ven if there were stronger evidence of [an asset] bubble, I’m not convinced that leaning against it is good policy. Even if the Fed could accurately detect a bubble in real time, and even if we decided that a bubble-pricking exercise would be warranted, monetary policy is too blunt an instrument for this task... Our attempts to counter a hypothetical future bubble would end up weakening our efforts to achieve the stabilization benefits embodied in the dual mandate.

Thu, May 19, 2011
Global Corporate Treasurer Forum

Slow progress in closing resource gaps and a medium-term outlook for inflation that is too low lead me to conclude that substantial policy accommodation continues to be appropriate.

Thu, May 19, 2011
Global Corporate Treasurer Forum

“I know that some people are concerned that exuberance is coming back a little too quickly in certain market segments,” though supervisors have a “stronger eye” on some prices, Evans said in response to audience questions.

“I’m hard pressed to second guess the market pricing mechanism” for such assets, he said.

Thu, May 19, 2011
Global Corporate Treasurer Forum

One caveat that would cause Evans to “reassess my inflation outlook” would be if “medium term inflationary expectations were to rise,” he said.

“If inflation expectations were to start to creep up because of rising commodity prices or any other factor, the FOMC would consider this important development and act accordingly to keep inflation expectations well grounded,” he said.

Thu, June 23, 2011
Federal Reserve Bank of Chicago

“Recently, we have seen that state budget concerns can weigh on economic activity,” Evans said at the conference on state budgets under stress. “States now face a serious challenge in the recession and its aftermath,” with bases of revenue contracting faster than in previous years, he said.

Thu, July 21, 2011
Federal Reserve Bank of Chicago

But signs the U.S. recovery is flagging - again - suggest the economy needs more gas, and soon, Chicago Federal Reserve Bank President Charles Evans told a small group of reporters in a joint interview.

"If it were easy to do, if we had a very effective policy tool like a positive funds rate, if we could cut that by 100 basis points, then I would almost surely be advocating something like that," Evans said. "But in the absence of that, I think we have to think about the other tools."

Thu, July 21, 2011
Federal Reserve Bank of Chicago

“The reasons to withdraw policy accommodation seem to me weak at the moment,” said the bank chief, who is one of only two regional Fed presidents who vote every other year, along with Cleveland Fed President Sandra Pianalto. “So I would not be surprised if that doesn’t change until an event late in 2012.”

Tue, August 30, 2011
CNBC Interview

"I definitely favor strong accommodation at this point," he said. "I supported the policy decision and the announcement, but frankly, I would have wanted to do more."

Tue, August 30, 2011
CNBC Interview

We need to do much more to increase the level of accommodation.

Wed, September 07, 2011
European Economics and Finance Centre Seminar

But I do not think that a temporary period of inflation above 2% is something to regard with horror. I do not see our 2% goal as a cap on inflation. Rather, it is a goal for the average rate of inflation over some period of time. To average 2%, inflation could be above 2% in some periods and below 2% in others. If a 2% goal was meant to be a cap on inflation, then policy would result in inflation averaging below 2% over time. I do not think this would be a good implementation of a 2% goal.

Wed, September 07, 2011
European Economics and Finance Centre Seminar

I would argue that this view is extremely, and inappropriately, asymmetric in its weighting of the Fed’s dual objectives to support maximum employment and price stability.

 

Suppose we faced a very different economic environment: Imagine that inflation was running at 5% against our inflation objective of 2%. Is there a doubt that any central banker worth their salt would be reacting strongly to fight this high inflation rate? No, there isn’t any doubt. They would be acting as if their hair was on fire. We should be similarly energized about improving conditions in the labor market.

 

In the United States, the Federal Reserve Act charges us with maintaining monetary and financial conditions that support maximum employment and price stability. This is referred to as the Fed’s dual mandate and it has the force of law behind it.

 

The most reasonable interpretation of our maximum employment objective is an unemployment rate near its natural rate, and a fairly conservative estimate of that natural rate is 6%. So, when unemployment stands at 9%, we’re missing on our employment mandate by 3 full percentage points. That’s just as bad as 5% inflation versus a 2% target. So, if 5% inflation would have our hair on fire, so should 9% unemployment.

Wed, September 07, 2011
European Economics and Finance Centre Seminar

The Fed’s current commitment to record-low interest rates should be made contingent on pushing the unemployment rate to around 7 percent or 7.5 percent, as long as inflation stays below 3 percent in the medium term, the 53-year-old regional bank chief said today in a speech in London.

“Given how truly badly we are doing in meeting our employment mandate, I argue that the Fed should seriously consider actions that would add very significant amounts of policy accommodation,” he said. “Such further policy accommodation does increase the risk that inflation could rise temporarily above our long-term goal of 2 percent.”

Wed, September 07, 2011
European Economics and Finance Centre Seminar

Asked if he would push at the Sept. 20-21 policy meeting for clarity on how long the Fed will leave interest rates unchanged, he said that “would be a welcome addition to our current conditional forward guidance.”

“At the moment we added mid-2013 to the statement and there’s some conditionality associated with that,” he said. “I would prefer to be extraordinarily clear in the conditioning to that. That would be truly clarifying.”

Mon, October 17, 2011
Michigan Council on Economic Education, Michigan Economic Dinner

I believe that we can substantially ease the public’s concern that monetary policy will become restrictive in the near to medium term and, hence, reduce the restraint in expanding economic activity. This can be done by clearly spelling out in our policy statements the conditionality of our dual mandate responsibilities. What should such a statement look like? I think we should consider committing to keep short-term rates at zero until either the unemployment rate goes below 7 percent or the outlook for inflation over the medium term goes above 3 percent. Such policies should enable us to make progress toward our mandated goals. But if this progress is too slow, then we should move forward with increased purchases of longer-term securities. We might even consider a regime in which we reevaluate our progress toward our policy goals and the rate of purchase of such assets at every FOMC meeting.

Tue, November 15, 2011
Council on Foreign Relations

“The thing that I worry about is waking up and everyone being complacent that” the economy is going to “muddle through,” Evans said. “We do need leadership” and “I have been in a very small manner trying to advance this by saying I think we should be willing to accept slightly above target inflation,” he said.

Tue, November 15, 2011
CNBC Interview

“The state of the economy is such that it would be a good idea to do asset purchases,” Evans said today during an interview on CNBC. He said the Fed could buy mortgage-backed securities.

Mon, December 05, 2011
Ball State University Center for Business and Economic Research Outlook Luncheon

As I weigh the evidence, I find the case for the liquidity trap scenario more compelling than one for the structural impediments scenario. My assessment has been influenced by the book titled This Time Is Different: Eight Centuries of Financial Folly[3] by Carmen Reinhart and Kenneth Rogoff. Reinhart and Rogoff document the substantially detrimental effects that financial crises typically impose on the subsequent economic recovery. As we all know, the recent recession was accompanied by a large financial crisis. When I look at the U.S. economy today, I see it tracking Reinhart and Rogoff’s observation that such recoveries are usually painfully slow — and are so for reasons that have little to do with structural impediments in the labor market and the like.

Liquidity traps are rare and difficult events to manage. They present a clear and present danger that we risk repeating the experience of the U.S. in the 1930s or that of Japan over the past 20 years. However, liquidity traps have been studied over the years in rigorous analytical models by a number of prominent economists, including Paul Krugman, Gauti Eggertsson, Michael Woodford and Ivan Werning.[4] Variants of these models have successfully explained business cycle developments in the United States. The lesson drawn from this literature is that the performance of economies stuck in a liquidity trap can be vastly improved by lowering real interest rates and lifting economic activity using an appropriately prolonged and forward-looking period of accommodative monetary policy. Of course, such monetary accommodation is the antithesis of the policy prescription for the structural impediments scenario.

Mon, December 05, 2011
Ball State University Center for Business and Economic Research Outlook Luncheon

 The Fed could sharpen its forward guidance in two directions by implementing a state-contingent policy. The first part of such a policy would be to communicate that we will keep the funds rate at exceptionally low levels as long as unemployment is somewhat above its natural rate. The second part of the policy is to have an essential safeguard — that is, a commitment to pull back on accommodation if inflation rises above a particular threshold. This inflation safeguard would insure us against the risks that the supply constraints central to the structural impediments scenario are stronger than I think. Rates would remain low as long as the conditions were unmet.

 Furthermore, I believe the inflation-safeguard threshold needs to be above our current 2 percent inflation objective — perhaps something like 3 percent...

Mon, December 05, 2011
Ball State University Center for Business and Economic Research Outlook Luncheon

Without new developments or changes in policy, I don’t believe the U.S. economy is poised to achieve escape velocity anytime soon.

Fri, December 16, 2011
European University Institute

“No matter which explanation seems to be at work, we can continue to push accommodative policy” until joblessness falls.

Wed, January 11, 2012
Lake Forest-Lake Bluff Rotary Club

“We might have to do more,” Evans said today in response to audience questions, referring to whether the Fed should increase accommodation. “We should do more,” Evans said, “even at a cost of slightly higher inflation than most central bankers would like.”

Fri, January 13, 2012
Indiana Bankers Association

Given the high unemployment rate and low job growth, I think it is clear that the Fed has fallen short in achieving its goal of maximum employment.

As for the price stability component of our dual mandate, the majority of FOMC participants—including me—judge that our objective is for overall inflation to average 2 percent over the medium term. With my own view that inflation is likely to run below this rate over the next few years, I believe we will miss on our inflation objective as well.

Fri, January 13, 2012
Indiana Bankers Association

Let me outline how this balanced policy approach might work in practice. The Fed could sharpen its forward guidance by pledging to keep policy rates near zero until one of two events occurs.

First, this policy would account for the liquidity trap risk by communicating that we intend to keep the federal funds rate at exceptionally low levels as long as the unemployment rate is above a 7 percent threshold.

Reductions in the unemployment rate below this level would represent meaningful progress toward the natural rate of unemployment and might be a reason to lessen policy accommodation. Second, this policy would account for the risk of higher inflation —that is, we would be committed to pulling back on accommodation if inflation rises above a particular threshold.

I would argue that this policy’s inflation-safeguard threshold needs to be above our current 2 percent inflation objective. My preferred threshold is a forecast of 3 percent over the medium term.

Thu, February 02, 2012
Federal Reserve Bank of Chicago

My preferred policy would be one where we are even clearer in what our intentions are on the federal funds rate and monetary policy.

Thu, February 02, 2012
Federal Reserve Bank of Chicago

People outside the Fed have “mentioned that maybe you needed to do well over a trillion dollars in asset purchases in order to begin to move things,” the regional chief told reporters today during a meeting at the bank. “I don’t have a particular number in mind, but it would be more ambitious than most numbers being bandied about.”

Fri, March 16, 2012
International Research Forum on Monetary Policy Conference

“As an accountable central bank in a democratic society, the Federal Reserve has an obligation to clearly articulate what it is trying to achieve with monetary policy,” he said. “The economic thresholds I am proposing put a higher and more predictable standard on the removal of accommodation.”

Thu, March 22, 2012
Brookings Institution

At 8.3 percent, the unemployment rate is substantially above reasonable measures of the natural rate; the output gap is probably 5 to 6 percent; and underlying inflation measures are projected to be below our 2 percent objective for a number of years.

Clearly, more accommodation would be appropriate.

Tue, May 01, 2012
Milken Institute Global Conference

Evans again expressed his strong support for continued easy policy from the Fed, saying "we need strong accommodation. I don't see the need going away" until the economy is sustaining growth around 4% for a sustained period.

Thu, May 03, 2012
Federal Reserve Bank of Chicago

In prepared remarks, Evans said the financial crisis revealed weaknesses "in our increasingly interconnected, global financial system."

Tue, June 05, 2012
Money Marketeers of NYU

I have proposed that any further accommodative policies should contain a safeguard against an unreasonable increase in inflation. In my judgment, nominal income level targeting is an appropriate policy choice and has such a safeguard. But recognizing the difficult nature of that policy approach, I have a more modest proposal: I support a conditional approach, whereby the federal funds rate is not increased until the unemployment rate falls below 7 percent, at least, or if inflation rises above 3 percent over the medium-term. The economic conditionality in my 7/3 threshold policy would clarify our forward policy intentions greatly and provide a more meaningful guide on how long the federal funds rate will remain low.

 

Tue, June 05, 2012
Money Marketeers of NYU

But if I were bound and determined to address the concerns that savers are being disadvantaged by low interest rates, there are three prescriptions that I could imagine undertaking. And let me tell you, two of them are bad.

First, the FOMC could immediately undertake a program to raise short-term interest rates. In other words, monetary policy could exogenously turn more restrictive. Would this help savers and the economy? In my judgment, that would be a very bad policy. More restrictive credit would further reduce investment and job creation and limit the supply of credit to small business entrepreneurs, resulting in growth even slower than it is now. Savers would not be left with higher returns. And savers’ other sources of income would be reduced, like employment and entrepreneurial income. I have few doubts that policy would need to quickly retrace such a misguided increase.

Alternatively, the FOMC could decide to undertake expansionary policies to the point of “recklessness” by pursuing an extremely high rate of inflation. Persistently higher rates of inflation—outside of reasonable tolerance bands around our long-run inflation objective—would indeed lead to higher interest rates for all. Savers would receive higher nominal interest income; but as Chairman Bernanke said recently, the FOMC would clearly view this as reckless and would not choose to pursue such a policy. Again, this is a case where higher nominal interest rates would be bad for savers and the entire public.

But third, if the FOMC and other policymakers could engineer stronger growth policies so that the economy boomed again and unemployment fell, this would organically lead to higher real rates of return on investment and higher interest rates in general, which would benefit savers and the entire public. A more vibrant economy would benefit owners of unused resources, like unused factory capacity and unemployed workers. This is the policy path that is most desirable in my opinion. I also think it is most consistent with the accommodative policies I have been advocating.

Mon, June 11, 2012
Loop Capital Markets Annaul Economic Update Dinner

Evans, one of the Fed’s most vocal advocates for more easing, reiterated his view that the central bank should say it won’t raise interest rates until either unemployment falls below 7 percent or inflation increases above 3 percent over “the medium term.”

Tue, June 12, 2012
Bloomberg Interview

I’ve been in favor of pretty much any accommodative policy I’ve heard about. Extending the Twist would be useful. More asset purchases would be useful. More mortgage-backed securities purchases would be good.

Sun, July 08, 2012
Sasin Bangkok Forum

With huge resource gaps, slow growth and low inflation, the economic circumstances warrant extremely strong accommodation.

I support using our balance sheet to provide additional accommodation. I think our action in June that continued our Maturity Extension Program was useful; but I would have preferred an even stronger step, such as the purchase of more mortgage-backed securities.

Finding a way to deliver more accommodation — whether it is monetary or fiscal — is particularly important now because delays in reducing unemployment are costly.

I believe the FOMC can do better at describing our thinking with respect to tolerance bands around our long-run inflation and unemployment goals. Clarification would increase both transparency and accountability. Importantly, it would help markets better anticipate Fed actions, creating one less source of risk for economic agents to manage.

Mon, August 27, 2012
MNI

"I don't think we should be in a mode where we are waiting to see what the next few data releases bring. We are well past the threshold for additional action; we should take that action now."


"Clear and steady progress toward stronger growth is essential. Because we are not seeing that now, I support further use of our balance sheet to provide even more monetary accommodation."

Tue, September 18, 2012
Bank of Ann Arbor Breakfast

Evans told reporters after the speech that a pace of $85 billion in mortgage-backed securities and Treasury securities may be appropriate into 2013.

“We’re looking for stronger employment growth, some beginning declines in the unemployment rate and stronger growth,” Evans said. “I’d be surprised if we would see enough evidence of that by the end of this year. So under that conditioning, I would expect that we would continue at something like an $85 billion pace of purchases post December.”

Wed, September 26, 2012
Lakeshore Chamber of Commerce Business Expo

Let me be clear. This was the time to act. With the problems we face and the potential dangers lying ahead, it is essential to do as much as we can now to bolster the resiliency and vibrancy of the economy. We cannot be complacent and assume that the economy is not being damaged if no action is taken.

If we continue to take only modest, cautious, safe policy actions, we risk suffering a lost decade similar to that which Japan experienced in the 1990s. Underestimating the enormity of our problems and the negative forces holding back growth itself exposes the economy to other potentially more serious unintended consequences. That type of passivity is a gamble that is not worth taking.

Wed, September 26, 2012
Lakeshore Chamber of Commerce Business Expo

Now, I am an optimist. I think we can do better than this gloomy outlook.

There are many who believe otherwise. In their view, our current low output and high unemployment are the hallmarks of an economy that has lost its competitiveness — an economy that experienced permanent disruptions in its infrastructure, the skills base of its work force and its technological capability.

I see little evidence to support such a pessimistic view of the world. And I refuse to be so nihilistic in the absence of strong evidence of permanent disruptions. It is very hard to believe that millions of people who were working productively just a few years ago have suddenly become unemployable. And while many of the pessimists have been predicting higher inflation for several years, it hasn’t materialized.

Mon, October 01, 2012
CNBC Interview

The current rate of 8.1 percent is too high and showing that the economy has yet to achieve sustainable growth, he said.

"That tells me that more accommodation would be appropriate, especially if it's effective," Evans said during a "Squawk Box" interview. "By all the analyses I've seen, it will be effective and the inflation risks are not very large at the moment."
...

"There's scope for doing more. I would have been doing more for a longer period of time," Evans said. "The committee made the determination that we're a lot closer to something like unacceptable growth — stall speed — and it's time to do more."

Tue, November 27, 2012
C.D. Howe Institute

In the past, I have said we should hold the fed funds rate near zero at least as long as the unemployment rate is above 7 percent and as long as inflation is below 3 percent. I now think the 7 percent threshold is too conservative. Our latest actions put us on a better policy path than we had when I first proposed the 7/3 markers a year ago. At the same time, there still are few signs of substantial inflationary pressures. If we continue to have few concerns about inflation along the path to a stronger recovery there would be no reason to undo the positive effects of these policy actions prematurely just because the unemployment rate hits 6.9 percent — a level that is still notably above the rate we associate with maximum employment.

This logic is supported by a number of macro-model simulations I have seen, which indicate that we can keep the funds rate near zero until the unemployment rate hits at least 6-1/2 percent and still generate only minimal inflation risks. Even a 6 percent threshold doesn’t look threatening in many of these scenarios. But for now, I am ready to say that 6-1/2 percent looks like a better unemployment marker than the 7 percent rate I had called for earlier.

Tue, November 27, 2012
BNN Interview

“My own viewpoint is that we need to continue with those asset purchases at the $85 billion pace until we see labor-market improvement. That’s likely to be at a minimum six months I would say, perhaps as long as a year,” Mr. Evans said in an interview with BNN, a Canadian business television network. He defined labor market improvement as payroll employment growth of 200,000 a month for about six months, above-trend growth, and a drop in the jobless rate.

Thu, April 04, 2013
University of Dayton R.I.S.E. Global Student Investment Forum

Evans said to reporters after the panel he wants 200,000 payroll growth “month after month for at least six months, and a rising profile for that would be extremely welcome.”

Tue, April 16, 2013
Union League Club of Chicago

The Federal Open Market Committee said in March it will keep buying $85 billion in bonds each month until the labor market substantially improves. Evans, who votes on the FOMC this year, told reporters after the speech that he expects the Fed to keep the asset-purchase plan in place until at least late this year.

“I would not be surprised if we end up doing this until late 2013, ultimately ending the program in 2014 at some point,” he said.

Mon, May 20, 2013
CFA Society of Chicago

 Federal Reserve Bank of Chicago President Charles Evans said the U.S. economy has improved “quite a lot” as the central bank maintains record stimulus and expressed confidence policy makers have tools needed to monitor markets for excesses.

“I’m optimistic that the labor market has been doing much, much better and that unemployment is going to continue to go down,” Evans said in a speech in Chicago today. “Currently we have the appropriate monetary policy in place.”

The question now is “how much confidence we have that the improvements that have been made will continue and be sustained,” said Evans, who holds a vote on the FOMC this year.

“If I had high confidence that this was going to be maintained over the next six months and beyond, I would be quite amenable to discussions about adjusting the flow of purchases downward,” Evans said.

“I’d like to see a few more months of data,” he said. “We don’t have to adjust the pace all the time” and while “it would be okay to keep going,” he’s open-minded, he said.

Tue, August 06, 2013
Bloomberg News

“We’ve seen good improvement in the labor market, there’s no question in my mind about that,” Evans said in Chicago. “I’m still wanting to see greater evidence that it’s a sustainable improvement” and “I would clearly not rule” out a decision to begin dialing back the purchases in September.

Tue, August 06, 2013
Bloomberg News

Minneapolis Fed President Narayana Kocherlakota has been urging his colleagues to adopt a lower unemployment threshold, to 5.5 percent. Evans today said his thinking is “not largely inconsistent with President Kocherlakota’s proposal” because, if inflation remained low, he would support keeping rates near zero even after joblessness fell below 6.5 percent.

“Unemployment might get down to 6 before we see the need” to tighten, he said. “If the committee viewed it as additionally useful to adjust that threshold” down, “I would certainly pay attention to that. I don’t anticipate I would have a problem with that.”

While some commentators have speculated that the Fed may set a lower bound on inflation, “I don’t really appreciate how that helps in providing the appropriate amount of accommodation,” he said.

Fri, September 06, 2013
AgFirst Summit

Well, some days I wish that questions like these {about tapering} could be answered with a firm date, a single number and a confident “yes,” accompanied by a fist pump. Unfortunately, the answer to the first question is not as simple as giving a calendar date. Instead, uncertainty over the pace of the recovery means all of this depends on the progress that the economy makes toward our goals of maximum employment and price stability. In my view, this means continuing our current QE3 asset purchase program until three conditions are met. First, the unemployment rate must be in the vicinity of 7 percent with expectations for it to continue falling in a self-sustaining fashion. Second, other important labor market indicators must show a commensurate improvement. And third, we must have considerable confidence that inflation is moving back toward our target of 2 percent. Currently, my best assessment is that by the time these conditions have been met, our QE3 asset purchases since January of this year will total at least $1.25 trillion. By comparison, that would be twice the size of our QE2 purchases made in 2010 and 2011. This would mean that our System Open Market Account (SOMA) balance sheet will reach approximately $4 trillion.

Fri, September 27, 2013
Monetary Policy Forum

“We’re not on a pre-set course,”Charles Evans, president of the Federal Reserve Bank of Chicago told reporters on the sidelines of a monetary policy conference in Oslo. He said the Fed’s decision to start reducing its $85 billion in monthly bond purchases “could be in October, it could be in December, but it also could be at the January meeting.”

Wed, October 16, 2013
Economic Outlook Seminar

I’d like to note here that the exact pattern of the reduction in purchases eventually taken isn’t so critical because the path is likely to have only a marginal impact on what is most important — the total amount of purchases that are eventually made. The assumption underlying my current forecast is that by the time we end the program, total asset purchases since January 2013 will be in the neighborhood of $1.25 trillion. This is a very substantial program — one that is about double the size of our QE2 program that we ran between the fall of 2010 and the summer of 2011.


Wed, October 16, 2013
Economic Outlook Seminar

The unemployment rate hitting 6-1/2 percent will not automatically result in an increase in the federal funds rate… When evaluating policy, we will take into account a couple of basic principles. One is that our 2 percent inflation goal is a symmetric target, not a ceiling. We’re shooting for inflation to average 2 percent over the medium term. This is different from aiming to keep it no higher than 2 percent…

Another principle is that when setting policy, we will take a balanced approach to achieving our dual mandate objectives…

Suppose the unemployment rate reached 6-1/2 percent and inflation were 1-1/2 percent. One-and-a-half percent strikes me as much too low relative to our 2 percent target, especially since inflation has been running below 2 percent for quite a long time. I think that in this situation, it would be appropriate to hold the fed funds rate near zero to get inflation confidently moving back up toward 2 percent. I can easily envision certain circumstances in which the unemployment rate could go below 6 percent before we moved the fed funds rate up.

Wed, October 16, 2013
Economic Outlook Seminar

Let me just remind everyone that inflation falling below our target of 2 percent is costly. If inflation is lower than expected, then debt financing is more burdensome than borrowers expected. Problems of debt overhang become that much worse for the economy. Conversely, if inflation is higher than expected, lenders are disadvantaged. So, that is why it is important for the Fed to provide for inflation that averages over time to our 2 percent long-run objective.

Wed, October 16, 2013
Economic Outlook Seminar

Incidentally, despite what some critics have said, this benign outcome for inflation is actually quite consistent with my reading of Milton Friedman’s analysis. The measures of money he associated with inflation were broad measures that include money created by the banking system. The increases we have seen in those measures have been much more moderate. One of the big points from his Monetary History of the United States[3] was that focusing too much on the size of the Fed’s balance sheet was a bad idea. Indeed, in the early 1930s, the Fed increased the size of its balance sheet quite substantially. But it wasn’t enough. Given the struggles of the banking system, broad measures of money actually declined, leading to deflation. The conclusion was that the Fed needed to have increased its balance sheet even more. That’s a lesson the Bernanke Fed has taken to heart this time around.

Thu, October 17, 2013
Financial Management Association Annual Meeting

So, one could reach the conclusion that historically low and stable interest rates pose a threat to financial stability…

I don’t believe that is the right approach… If more restrictive monetary policies were pursued to generate higher interest rates, they would likely result in higher unemployment and a sharp decline in asset prices, choking the moderate recovery. Such an adverse economic outcome is unlikely to set a favorable foundation for financial stability. Moreover, our short-term interest rate tools are too blunt to have a significant effect on those pockets of the financial system prone to inappropriate risk-taking without, at the same time, significantly damaging other markets, as well as the growth prospects for the economy as a whole. Therefore, stepping away from otherwise appropriate monetary policy to address potential financial stability risks would degrade progress towards maximum employment and price stability. This approach would be a poor choice if other tools are available, at lower social costs, to address financial stability risks.



If you believe that financial stability can only be achieved through higher interest rates — interest rates that would do immediate damage to meeting our dual mandate goals at a time when unemployment is still unacceptably high — then we ought to at least ask ourselves if the financial system has become too big and too complex. This conclusion is particularly vexing if supervisory, macroprudential and market-discipline tools are inadequate. If the only way we can achieve financial stability is to raise interest rates above where the forces of demand and supply in the real economy put them, then the cost-benefit calculus of our policy choices becomes much more complex. The possible benefit of such a restrictive rate move would be to reduce risks that might potentially be forming in the nooks and crannies of a highly complex financial system. But the cost would be higher unemployment; a risk of choking off the economic recovery; even lower inflation below our objective; and, somewhat paradoxically, the introduction of new financial risks by reducing asset values and credit quality.

Tue, November 19, 2013
Milken Institute Global Conference

All told, he said, the Fed's bond-buying program will probably add about $1.5 trillion or a bit more to the Fed's balance sheet since January 2013.

That's about $250 billion more than he had expected a few months ago, or the equivalent of about three additional months of bond-buying at the current pace. The Fed next meets in December, January and March to discuss policy.



Evans said he would support lowering the unemployment threshold that would trigger a rethink of the low-rate policy, to as low as 5.5 percent, as his colleague Minneapolis Fed chief Narayana Kocherlakota suggested.

Specifically, he said, the Fed should consider lowering the unemployment threshold at the same meeting it announces a reduction in bond purchases. Doing so, he said, could help avoid an undesirable spike in long-term interest rates that could result if investors equate an end to bond buying with a faster return to normal short-term borrowing rates.

Lowering the threshold would be "credibility-enhancing", he said, because it would underscore, rather than undercut, the Fed's commitment to boost jobs.

As reported by Reuters News

Fri, December 06, 2013
Loyola University Chicago

Asked whether strong job creation in November put a tapering of bond purchases on the table at this month's Fed meeting, Chicago Fed President Charles Evans said the data showed the economy was moving in the right direction.

"I'll be open-minded," Evans said in an interview with Reuters Insider. "Everything else (being) equal I would like to see a couple of months of good numbers, but this was improvement."

Wed, January 15, 2014
Corridor Economic Forecast Luncheon

“It makes a lot of sense to take measured steps to adjust the purchase-flow rate,” he said. “At the moment, the plan seems quite reasonable. And it is at measured steps so we can assess if the outlook is actually proceeding along the lines we are expecting. I think that is the right way to go.”

Wed, January 15, 2014
Corridor Economic Forecast Luncheon

Monetary policymakers must recognize the inherent uncertainties in how the economy may evolve and how our policies may influence those developments. Recognizing this, we have built ample safeguards and conditionalities into our unconventional monetary policy tools.

Wed, January 15, 2014
Corridor Economic Forecast Luncheon

Persistently undershooting our 2 percent target is costly. When determining how much debt to take on, borrowers consider their ability to repay that debt. For example, households take on debt expecting that their income will be adequate to cover monthly payments. If inflation is surprisingly low, wage increases and other income gains are more likely to fall short of these expectations, and interest and principal payments will be more burdensome than what was planned for. A similar story will hold for business borrowing. When debt financing becomes more burdensome than borrowers originally expected, a period of deleveraging can occur, and the associated reduction in spending can weigh heavily on the overall pace of economic activity.

Mon, March 10, 2014
Columbus State University

Federal Reserve Bank of Chicago President Charles Evans said Monday “there’s not a large expectation” the current system of numerical thresholds will remain in place for much longer. The Fed is likely to replace it with more “qualitative” guidance, he said in a speech at Columbus State University, in Georgia.


Mr. Evans said in his speech that when it comes to shrinking the bond buys, “we are going to continue to do that.” He added to reporters after his formal remarks that “we have got a pretty high hurdle for altering our taper plan,” noting that cutting them by $10 billion at each Fed policy meeting “is a nice benchmark” for future reductions.

Mr. Evans also said that if it were up to him, the Fed would refrain from raising short-term rates until sometime in 2016. Most Fed officials believe the first rate increase will come in 2015 if economic conditions improve as they expect.

Tue, April 08, 2014
IMF Annual Meeting

“One of the big risks is that we withdraw our accommodative policies prematurely… I think it’s just human nature to start thinking we’ve been doing this for a long time.”

The Fed’s benchmark short-term interest rate has been pinned near zero since late 2008, which could prompt some policy-makers to think “that must have been long enough. Maybe it’s time to start the process of renormalizing,” Mr. Evans said.

“Well, let me just remind everybody inflation is 0.9% in the U.S.” in February... Mr. Evans also stressed that inflation around the world is low. “I think that’s a sign of weakness; I think that’s a sign of risk,” he said.

He said it would be fine for inflation to exceed the Fed’s target. “Overshooting would not be a problem as long as it’s done in a reasonable fashion,” he said.

Tue, April 08, 2014
IMF Annual Meeting

"We just need the right stimulative policies, and if fiscal policy could help provide that, then that would make all the accommodative monetary policies that much more powerful,” Federal Reserve Bank of Chicago President Charles Evans said today at an International Monetary Fund seminar in Washington.

“It would lead to greater investment, more customers walking through the doors of all the stores that need that.”

Mon, June 02, 2014
Central Bank of Turkey

We need to get much, much closer to two percent before we even contemplate liftoff, Evans told reporters after a presentation at the Istanbul School of Central Banking today. Whether that's late 2015 or early 2015 or 2016, it'll depend on the economy.

Wed, September 24, 2014
Peterson Institute for International Economics

Accordingly, before the Fed raises rates we should have a great deal of confidence that we wont be forced to backtrack on our moves and face another painful period at the ZLB. We should be exceptionally patient in adjusting the stance of U.S. monetary policy even to the point of allowing a modest overshooting of our inflation target to appropriately balance the risks to our policy objectives.

...

I agree with Atlanta Fed President Lockhart in thinking that we ought to be whites of their eyes inflation fighters. The last thing we want to do is regress back into the ZLB. Indeed, such a relapse would be a sign there was something else going on that was preventing the economy from being as vibrant as we thought possible.

To summarize, I am very uncomfortable with calls to raise our policy rate sooner than later. I favor delaying liftoff until I am more certain that we have sufficient momentum in place toward our policy goals. And I think we should plan for our path of policy rate increases to be shallow in order to be sure that the economys momentum is sustainable in the presence of less accommodative financial conditions.

Mon, September 29, 2014
NABE Annual Meeting

As I think about the process of normalizing policy, I conclude that todays risk-management calculus says we should err on the side of patience in removing highly accommodative policy. We need to solidify our confidence that our ultimate exit from the ZLB will occur smoothly and in a way that sustains our escape from it. A corollary to this is we should not shy away from policy prescriptions that generate forecasts of inflation that moderately overshoot our 2 percent target for a limited time. Such a policy strategy more properly balances expected costs and benefits. And it would leave me with much more confidence that inflation will not stall out below target once we start raising rates.

Mon, September 29, 2014
CNBC Interview

June is certainly a possibility {for the first rate hike}. My own view once you say appropriate monetary policy, Id be saying I want to make sure that we get inflation up to 2%.

Wed, October 08, 2014
Lakeland College

As I think about the process of normalizing policy, I conclude that todays risk-management calculus says we should err on the side of patience in removing highly accommodative policy. We need to solidify our confidence that our ultimate exit from the ZLB will occur smoothly and that our escape can be sustained. A corollary to this conclusion is that we should not shy away from policy prescriptions that imply forecasts of inflation that moderately overshoot our 2 percent target for a limited time

To summarize, I am very uncomfortable with calls to raise our policy rate sooner than later. I favor delaying liftoff until I am more certain that we have sufficient momentum in place toward our policy goals. And I think we should plan for our path of policy rate increases to be shallow in order to be sure that the economys momentum is sustainable in the presence of less accommodative financial conditions. I look forward to the day when we can return to business-as-usual monetary policy, but that time has not yet arrived.

Tue, December 02, 2014
New York Times

Paul Volcker is a tremendous hero with the Federal Reserve System and for the American economy. He took very tough actions and helped to break the back of double-digit inflation at a time when it had to be done. It was at great cost, but were better off for having done that. Weve been lucky enough to have Mr. Volcker come speak at a luncheon in Chicago first time Ive met him and I shared my views on policy with him, and he called me an inflationist before it was even close to appropriate. He thinks inflation objectives closer to zero would be appropriate, and I understand that.

Tue, December 02, 2014
New York Times

I think appropriate monetary policy would keep the funds rate where it is until the first quarter of 2016. Considerable time seems to describe that perfectly fine. I dont feel its important to change the publics thinking on that, so I dont see a need to change {the language}.

Fri, January 09, 2015
CNBC Squawk Box

That wage number that you saw this morning going down is somewhat indicative of the low inflation pressures that we've been seeing. Earnings growth, you know, on average it's been 2 to 2.25% across a variety of measures. And now it's lower for average hourly earnings this morning. I think if we're going to get inflation up to our 2% objective, and it's now like 1.5% on core a little bit less than that we are going to have to see wages increase more. So I think that's indicative of one of the dilemmas we're facing. And that's why I am in favor of being patient on raising interest rates.
...
When I answer the question that's posed to us on what appropriate monetary policy is.., it comes out for me that we shouldn't be raising rates before 2016. If things transpire as I'm expecting. Employment has been good. I've been expecting that. I'm hoping that inflation is going to pick up. And I think we need to see more of that. So, yeah, I think I'd like to have more confidence that we're going to get to 2% by 2016 would be great. 2017 seems like the minimal allowable thing. So i think to get there, I think we need more continued accommodation.

Fri, January 09, 2015
CNBC Squawk Box

Charlie Evans: We pay attention to anything and everything that can affect the U.S. economy and us achieving our mandates and global effects are very important. So making sure that the slow global economy isn't going to slow the U.S. economy down is important. The effect on cost and things like that. We pay attention to it but

Becky Quick: currency markets too? Like the strong dollar?

Charlie Evans: we look at what relevant costs are for manufacturers and consumers and everything. And so import prices are going to be part of that. But we are always looking at what the implications are for the U.S. we're cognizant of the implication that has on the rest of the world and we pay attention to it as much just because that has a rebounding effect on the U.S. too. We have to understand that.

Mon, September 28, 2015

Before raising rates, I would like to have more confidence than I do today that inflation is indeed beginning to head higher. Given the current low level of core inflation, some evidence of true upward momentum in actual inflation is critical to this assessment. I believe that it could well be the middle of next year before the headwinds from lower energy prices and the stronger dollar dissipate enough so that we begin to see some sustained upward movement in core inflation. After liftoff, I think it would be appropriate to raise the target interest rate very gradually. This would give us sufficient time to assess how the economy is adjusting to higher rates and the progress we are making toward our policy goals

Mon, September 28, 2015

We talk a lot about data dependence, but what does that really mean? To me, it involves the following: 1) evaluating how the new information alters the outlook and the assessment of risks around that outlook; and 2) adjusting my expected path for policy in a way that keeps us on course to achieve our dual mandate objectives in a timely manner. So, if in the coming months inflation rises more quickly than I currently anticipate and appears to be headed to undesirably high levels, then I would argue to tighten financial conditions sooner and more aggressively than I presently do. If instead inflation headwinds persist, I would advocate a more gradual approach to normalization than I currently envision.

Fri, October 09, 2015

Most FOMC participants expect inflation to rise steadily from these low levels, coming in just a shade under the Committee’s 2 percent target by the end of 2017. My own forecast is less sanguine. I expect core PCE inflation to undershoot 2 percent by a greater margin over the next two years than do my colleagues. I expect core PCE inflation will be just below 2 percent at the end of 2018.

Fri, October 09, 2015

Before raising rates, I would like to have more confidence than I do today that inflation is indeed beginning to head higher. Given the current low level of core inflation, some evidence of true upward momentum in actual inflation is critical to this assessment. I believe that it could well be the middle of next year before the headwinds from lower energy prices and the stronger dollar dissipate enough so that we begin to see some sustained upward movement in core inflation. After liftoff, I think it would be appropriate to raise the target interest rate very gradually. This would give us sufficient time to assess how the economy is adjusting to higher rates and the progress we are making toward our policy goals.

Fri, October 09, 2015

There is an important caveat, though, to my comment downplaying the importance of the exact date of lift-off. It is critically important to me that when we first raise rates the FOMC also strongly and effectively communicates its plan for a gradual path for future rate increases. If we do not, then markets might construe an early liftoff as a signal that the Committee is less inclined to provide the degree of accommodation than I think is appropriate for the timely achievement of our dual mandate objectives. I would view this as an important policy error.

Mon, October 12, 2015

Now I would like to emphasize that while I favor a somewhat later lift off than many of my colleagues, the precise timing for the first increase in the federal funds rate is less important to me than the path the funds rate will follow over the entire policy normalization process. After all, today’s medium- and longer-term interest rates depend on market expectations of the entire path for future rates, not just the first move. In turn, these medium- and longer-term rates are key to the borrowing and spending decisions of households and businesses.

Accordingly, when thinking about the initial stages of normalization, I find it useful to focus on where I think the federal funds rate ought to be at the end of next year given my economic outlook and assessment of the risks. And right now, regardless of the exact date for lift-off, I think it could well be appropriate for the funds rate to still be under 1 percent at the end of 2016.

Fri, November 06, 2015
CNBC Interview

Addressing whether the Fed should hike interest rates next month, the dovish Fed official acknowledged, "We've indicated that conditions look like they could be ripe of an increase."

"[But] my continued preference for more delay or a shallower path ... [is] my uncertainty over whether ... inflation is going to get up to our 2 percent objective within reasonable amount of time," he said on "Squawk Box."

Thu, November 12, 2015

Most FOMC participants expect inflation to rise steadily from these low levels, coming in just a shade under the Committee’s 2 percent target by the end of 2017. My own forecast is less sanguine. I expect core PCE inflation to undershoot 2 percent by a greater margin over the next two years than do my colleagues. I expect core PCE inflation to be just below 2 percent at the end of 2018.
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More specifically, before raising rates, I would like to have more confidence than I do today that inflation is indeed beginning to head higher. Given the current low level of core inflation, some evidence of true upward momentum in actual inflation is critical to this assessment. I believe that it could be well into next year before the headwinds from lower energy prices and the stronger dollar dissipate enough so that we begin to see some sustained upward movement in core inflation. After liftoff, I think it would be appropriate to raise the target interest rate very gradually. This would give us sufficient time to assess how the economy is adjusting to higher rates and the progress we are making toward our policy goals.

Tue, December 01, 2015

How does [my current] asymmetric assessment of risks to achieving the dual mandate goals influence my view of the most appropriate path for monetary policy over the next three years? It leads me to prefer a later liftoff than many would like, followed by a very gradual normalization of our monetary policy. I think such a policy setting will best position the economy for the potential challenges ahead.

Now, I take seriously the view that I should go into every FOMC meeting with an open mind regarding the policy decision. And I will do so in our meeting two weeks from now. Should we raise rates or not? I admit to some nervousness about our upcoming decision. Before raising rates, I would prefer to have more confidence than I do today that inflation is indeed beginning to head higher. Given the current low level of core inflation, some evidence of true upward momentum in actual inflation would bolster my confidence. I am concerned, however, that it could be well into next year before the headwinds from lower energy prices and the stronger dollar dissipate enough so that we begin to see some sustained upward movement in core inflation.

Tue, December 01, 2015

So why do I lack confidence in our ability to achieve our 2 percent inflation target over the medium term? One reason is that there exist a number of important downside risks to the inflation outlook. Now I recognize that “medium term” is somewhat vague. To a central banker it can mean two to three years or three to four years. It is more a term of art than science.

So what are these inflation risks? With prospects of slower growth in China and other emerging market economies, low energy and import prices could exert downward pressure on inflation longer than most anticipate. That’s a risk. In addition, while many survey-based measures of long-term inflation expectations have been relatively stable in recent years, we shouldn’t take them as confirmation that our 2 percent target is assured. In fact, some survey measures of inflation expectations have ticked down in the past year and a half. Furthermore, measures of inflation compensation derived from financial markets have moved down to quite low levels in recent months. These measures could reflect either lower expectations of inflation or a heightened concern over the nature of the economic conditions that will be associated with low inflation. Adding to my unease is anecdotal evidence: I talk to a wide range of business contacts, and virtually none of them are mentioning rising inflationary or cost pressures. No one is planning for higher inflation. My contacts just don’t expect it.

Thu, January 07, 2016

Given the persistently-low- inflation record of the past six years and given how slowly inflation evolves when it is at such low levels, it may be difficult to return inflation to target over the next two or three years. So I’m in favor of very gradual policy normalization to help ensure that we meet our inflation goal within a reasonable amount of time. Moreover, as I have argued many times, prudent risk management calls for a slower removal of accommodative monetary policy. From my perspective, the costs of raising the federal funds rate too quickly far exceed the costs of removing accommodation too slowly. So taking both of these concerns into account — and considering how I think economic conditions will evolve over time — I believe that policy should plan to follow an even shallower path for the federal funds rate than currently envisioned by the median FOMC participant.

Thu, January 07, 2016

If we are near our employment mandate and the prospects for growth look solid, why are we expecting to take this gradual approach? What is different during this tightening cycle?

One issue is that the equilibrium, or the neutral, federal funds rate can move over the business cycle for a variety of reasons, and can be either above or below its long-run level. Currently, we think some remaining fallout from the financial crisis and international headwinds mean that the neutral level of the federal funds rate today is even lower than it will be in the long run. By some estimates, the equilibrium inflation-adjusted rate is currently near zero. This rate should rise gradually as the headwinds fade over time. But until they do, monetary policy rates must be even lower than they otherwise would be to provide adequate accommodation for economic growth.

Wed, January 13, 2016

When measured against [recent FOMC forecast] benchmarks, my forecast of GDP rising in the range of 2 to 2-1/2 percent in 2016 doesn’t look so bad. It’s simply saying that the economy will expand near its longer-run productive capabilities. This number may be disappointing — we would certainly like stronger sustainable growth — but there is nothing much that monetary policy can do about working-age population growth, labor force participation trends, and technical progress. These trend estimates are the benchmarks we must take as given when deciding how to set monetary policy.

Wed, January 13, 2016

There are some downside risks to this forecast. We might see further declines in energy prices or greater appreciation of the dollar. In addition, undershooting our 2 percent inflation target for as long as we have invites the risk of the public beginning to expect persistently low inflation in the future. If this mindset becomes embedded in decisions regarding wages and prices, then getting inflation back to 2 percent will be that much more difficult. Here, I find it troubling that the compensation for prospective inflation built into a number of financial market asset prices has drifted down considerably over the past two years. More recently, some survey-based measures of inflation expectations, which had previously seemed unmovable, have also edged down. So to achieve our inflation target — and to provide a buffer against downside risks — it is appropriate that we follow a gradual path to policy normalization.

Tue, March 22, 2016

Fed Chair Janet Yellen urged caution last week in interpreting the latest data. She acknowledged the pickup in core inflation, which excludes energy and food prices, but also said “it remains to be seen if this firming will be sustained.”

Evans echoed her concern, saying “it’s not completely clear” that recent improvements in core inflation “are going to be sustainable increases.” He also pointed to seasonal effects in recent years that make it more difficult to judge the outlook.

“It has been a notable feature of the inflation data for the last several years that we start the year off with a bit of a higher burst of inflation relative to what we had in the second half of the previous years, and then when the second half of the year comes, it kind of comes down again,” he said. “So there’s some residual seasonality.”

Tue, March 22, 2016

"I used to sort of look at these dots and think that they were a bit too restrictive for what I thought was appropriate," Evans said, referring to a chart of Fed officials' individual rate-hike forecasts, each represented by a dot. "I now think that those dots is really a pretty good setting" for monetary policy."

Wed, March 30, 2016
CNBC Squawk Box

Liesman: So you're thinking a 75 basis point 1% fed funds rate with a 2%, 2.5% economy and you don't feel like you're behind the curve in that environment?

Evans: No. I don't think inflation is going to get out of hand. Remember, we've been under 2% for a long time, we're supposed to be at 2%. It's a symmetric objective. Half the time we ought to be above 2%. I don't think we should be concerned about going through 2% on the way to making sure we get to 2% with high confidence. Of course we wouldn't want it to get out of hand. I don't think we're looking at anything like that in the U.S. so I think that we have the ability to be cautious.

Wed, March 30, 2016
CNBC Squawk Box

Liesman: You talked about agreements and disagreements is there a split on the federal reserve? A bunch of folks stepped out last week and said that april was the time the feds should consider it but i don't hear that from fed chair janet yellen at all that april is even on the table.

Evans: Well, in fairness I think she did say during the press conference well, of course we go into these meetings, April is live, they're all live meetings, we go in to talk about things. I would say the threshold for having confidence that inflation is going to sustainably move up towards our 2% inflation target is high. That hurdle is pretty high. So I'd be surprised if we met that condition myself in April. I think moving in June would be on the basis of further improvements in the labor market like what we've had.

Wed, March 30, 2016
Forecasters Club of New York

The very shallow path [of rate hikes implied by the SEP] also reflects my view that the neutral level of the federal funds rate today is lower than its eventual long-run level. By some estimates, the equilibrium inflation-adjusted rate is currently near zero. The degree of accommodation in actual policy needs to be judged against this benchmark. So the 75 to 100 basis point range for the nominal fed funds rate in the median SEP forecast for the end of 2016 is not terribly far below neutral.

Wed, March 30, 2016
Forecasters Club of New York

Over the past couple of months, however, core inflation moved up to 1.7 percent on a year-over-year basis. I am encouraged by this development, and have raised my forecast for core inflation in 2016 to 1.6 percent. Looking further ahead, I see both core and total inflation moving up gradually to approach our 2 percent inflation target within the next three years.
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However, I am a bit uneasy about this forecast. It is too early to tell whether the recent firmer readings in the inflation data will last or prove to be temporary volatility and reverse in coming months. We saw this happen in 2012. And there are some other downside risks to consider. International developments may result in further declines in energy prices or greater appreciation of the dollar. Most worrisome to me is the risk that inflation expectations might drift lower. Undershooting our 2 percent inflation target for as long as we have raises the risk that the public will expect persistently low inflation in the future. If such a mind-set becomes embedded in decisions regarding wages and prices, then returning inflation to 2 percent will be that much more difficult. Here, I find it troubling that the compensation for prospective inflation built into a number of financial market asset prices has drifted down considerably over the past two years. More recently, some survey-based measures of inflation expectations, which had previously seemed unmovable, edged down to historically low levels. True, financial market inflation compensation and survey measures of inflation expectations have risen some of late, but they still remain quite low.

Thu, March 31, 2016
CNBC Squawk Box

Liesman: But the markets right now just pricing in one [hike in 2016], and it's consistently been below. The guidance seems to be, you know, you start a normalization process which makes people think that you're heading up towards something that's higher than zero and perhaps higher than the 37 base points where you are now but right now it seems like all bets are off that you could be in this permanent neutral here.

Evans: Well, so look, the dot charts give the current best assessment of what we think the economy is doing and the appropriate monetary policy. You're right. We've used the term "normalization, renormalization" to kick things off and eventually we certainly want to get the funds rate up to a normal level, that 3% 3.5% rate, but look I have got to tell you I thought the chair was terrific yesterday when she said, you know, the dots aren't set in stone. There's a lot of conditionality that will depend on how things play out. We did use this term normalization, I think that's still correct but that doesn't mean we're going to get there tomorrow.

Thu, March 31, 2016
Wall Street Journal Tweet

I think people should learn to love the dot chart and pay attention to it.

Tue, April 05, 2016

Core PCE inflation also has run well below 2 percent for quite a long time. Over the past couple of months, however, core inflation moved up to 1.7 percent on a year-over-year basis. I am encouraged by this development, and have raised my forecast for core inflation in 2016 to 1.6 percent. Looking further ahead, I see both core and total inflation moving up gradually to approach our 2 percent inflation target within the next three years.

Tue, April 05, 2016

To recap, policymakers would have to resort to second-best policy tools to deal with unexpected weakness in activity or inflation, but we can use our old tried-and-true instruments for addressing stronger-than-expected outcomes. Even if the odds of upside and downside shocks are the same, the costs are not. How should the FOMC address these asymmetric risks? Well, we should buy some insurance against unexpected weakness by accepting a somewhat higher likelihood of stronger outcomes. Translated into monetary policy, this means being more accommodative than usual to provide an extra boost to aggregate demand as a buffer against possible future downside shocks that might otherwise drive us back to the effective lower bound.

Even beyond this asymmetry in costs, I see the distribution of future shocks as skewed in the direction of output running somewhat softer and inflation somewhat lower than what I have written down in my baseline projection. This tilting of the odds strengthens the rationale for shading policy in the direction of accommodation and provides additional support for a gradual path in normalizing policy.

To sum up, in 2016, I expect growth that is somewhat above trend and further progress in moving inflation toward our 2 percent target. As I consider how to calibrate monetary policy in the months and years ahead, I see two general — but key — considerations to keep in mind: 1) There are a number of downside risks to my near-term forecast; and 2) the equilibrium real federal funds rate is likely lower today than in the past (not only in the short run, as the economy continues to heal from the past wounds, but also in the long run). Today, the confluence of these considerations leads me to conclude that a very shallow path — such as the one envisioned by the median FOMC participant in March — is the most appropriate path for policy normalization over the next three years.

Tue, April 05, 2016

My baseline outlook has real gross domestic product (GDP) growing at a moderate 2 to 2-1/2 percent annual rate in 2016.

Tue, April 05, 2016

Evans cited the U.K. referendum on leaving the European Union and the the surge of refugees entering Europe. He added there’s also a “large uncertainty” about the U.S. presidential election in November.

“It’s hard to know what risks might be hitting us,” said Evans, who will vote on monetary policy next year. “We’re in a period where there are more uncertainties than you would normally have.”

Mon, May 09, 2016

“Overshooting a little bit just to make sure you get to 2% strikes me as quite sensible,” Mr. Evans said during a panel discussion at CityWeek, a London financial-services conference.

Fri, June 03, 2016
CNBC Interview

Two rate hikes in 2016, that's my own call for that, if the data continue to be in line with my outlook, that's a slow and gradual increase this year.
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Timing's not really that important, you mentioned possibly two summer hikes, that would be a little bit more than I'd say is ... priced in to the dots certainly and the market expectations.

Fri, June 03, 2016
CNBC Interview

I'm not an expert [on the issue of Brexit] and I think that it's a very critical decision obviously and it's going to have important ramifications for the country so I think everybody's attuned to this and looking to see how that plays out. I think in terms of the U.S., it's difficult to judge the influence. I think that markets must have been expecting, coming up to this decision time, and we'll have to see how it plays out. I'm not sure it plays an important role in our policy making beyond us just monitoring the U.S. data and general global financial conditions and having confidence that things are still on a good track.

Fri, June 03, 2016
Global Interdependence Center

Adding things up, I see growth in the U.S. recovering from the tepid first quarter and increasing in the range of 2 to 2-1/2 percent for the remainder of 2016 and in 2017. For reference, this pace is modestly stronger than my assessment of the underlying growth trend and should therefore support continued reduction in labor market slack.

I should note, though, that I see the balance of risks to this outlook as weighted to the downside. True, the solid labor market and continued low energy prices could lead to stronger household spending than expected — with attendant spillovers to other components of domestic demand. But the downside risks — notably that the international situation could deteriorate more than expected and related movements in the dollar and financial conditions could weigh more heavily on domestic spending — seem more likely to me. Also, I don’t see other sectors of spending picking up the slack if for some reason the U.S. consumer were to falter.

Fri, June 03, 2016
Global Interdependence Center

I am projecting core inflation to end 2016 at 1.6 percent. Further ahead, I see both core and total inflation moving up gradually to approach our 2 percent inflation target within the next three years. This path reflects the dissipating effects on consumer prices of earlier declines in energy prices and the appreciation in the dollar as well as the influence of further improvements in labor markets and growth in economic activity.

However, as with growth, I see downside risks to the outlook for inflation. The recent pickup in core inflation could prove to reflect more temporary volatility than I have assumed (we saw this happen in 2012). Or international developments may result in further declines in energy prices or greater appreciation of the dollar. Most worrisome to me is the risk that inflation expectations might drift lower. Here, I find it troubling that the compensation for prospective inflation one can glean from a number of financial asset prices has fallen considerably over the past two years. More recently, some survey-based measures of inflation expectations, which had previously seemed unmovable, edged down to historically low levels. True, financial market inflation compensation and some survey measures of inflation expectations have risen a bit of late, but they still remain quite low.

Fri, June 03, 2016
Global Interdependence Center

Seven FOMC participants [in March] thought the federal funds rate at the end of this year should be higher than the median. As Fed speakers began talking after our April meeting, some news accounts suggested there had been a significant shift in Fed sentiment, as the commentary covering these speakers emphasized arguments for more aggressive tightening than that represented by the median. If you find this confusing, I have a simple piece of advice: Before you infer that the consensus has shifted so quickly, count to seven first!

Fri, June 03, 2016
Bloomberg Interview

“This is adding a lot of uncertainty to the global economic environment, and there’s already a lot of uncertainty with global slowing around the world,” Evans said in an interview with Anna Edwards on Bloomberg Television on Friday. “This is just a very big unknown.”