SEOUL — The Federal Reserve can maintain its effort to stimulate the U.S. economy and support the banking system through its large balance sheet for an extended period, which may be extended even more should the situation worsen, Federal Reserve Bank of Chicago president Charles Evans said Monday.
“I still see we can maintain the balance sheet for an extended period and with uncertainty in financial markets I wouldn’t be surprised if that was extended a bit more,” he said at a conference here sponsored by the Bank of Korea. “It is contingent on the state of the economy.”
“Accommodative monetary policy continues to be appropriate for an extended period of time,” he added.
Evans said the situation in Europe is “a small additional uncertainty” that will mean U.S. exports will be weaker than expected.
“That’s going to dampen the recovery a little bit,” he said.
When the time does come to tighten, the Fed has “many ways to go for more restrictive policies.”
The Federal Reserve has “a wide array of tools” at its disposal, but Evans said he would expect it would first move to sterilize excess reserves. “Asset sales will come later but it will depend on circumstances and the perceived effectiveness of those tools,” he said.
Evans said the U.S. has definitely turned a corner and the economic recovery “seems well underway,” although the employment situation remains “troubling.”
He said most recent employment numbers have been “reasonably strong” and pointed out that the most recent rise in the unemployment rate was due to more people coming into the labor force.
“Inflation in the U.S. is under-running what I would term price stability,” Evans said.
“I would look for the recovery in the U.S. to continue to improve,” he said, adding that “the fact that it is improving continuously is a very good sign.”
“The labor market situation will improve” and “the consumer seems to be doing slightly better,” Evans said, even though the overall circumstances remain challenging.
— Market News International
