DES MOINES — Chicago Federal Reserve Bank President Charles Evans late Thursday that he had "no doubt" continued low long-term interest rates were causing investors pain, but stressed that raising rates would slow the economy.
"The way to help everybody is to get the economy growing again," Evans said, stressing that it was premature to expect any changes in rates or asset purchases.
Taking questions from the audience of financial advisers, Evans said a 6-1/2% target for the U.S. unemployment rate continues to be a good policy threshold for the Fed, but he added that if inflation were to rise more than 2-1/5%, he would reconsider his assumption.
As for his current outlook for inflation, Evans acknowledged wage growth is a fundamental component of inflation, but the U.S. is not seeing any upward pressure on wages.
"What keeps me up at night is that we turn into Japan," Evans said, reiterating a point he made in his prepared remarks that Japan choked off growth by tightening rates too soon.
Speaking to reporters following his speech, Evans said it was "premature to talk about tapering" off asset purchases in the Fed's open-ended purchases of mortgage-backed securities and long-term Treasuries.
"That will continue until we see solid improvement in unemployment month after month, preferably six of them," he said.
Asked about his outlook, Evans said he was optimistic, but he did not have the confidence that the U.S. would achieve sufficient improvement in employment this year to warrant any changes in policy.
He added that the looming sequester — the across-the-board spending cuts set to begin Friday — would be a further drag on the economy. In his prepared remarks, Evans said the current estimates of the drag in 2013 coming from fiscal consolidation without the sequester are about a point of GDP.
With sequestration, the drag would be even larger, particularly if it extended throughout the year, Evans said.
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