CHICAGO — Chicago Federal Reserve Bank President Charles Evans Tuesday told reporters that it is a "high probability" the Fed's large scale asset purchases will continue through 2013.
Evans was pressed on how long the Fed might continue its bond buying after he suggested that he might be slightly rethinking the purchases, noting that the Fed's balance sheet was far larger than central bankers had anticipated when the purchase program began in 2011.
Evans, a voter on the policy-setting Federal Open Market Committee this year, also said it was "possible" the Fed could taper its asset purchases by the end of 2013.
Evans comments came after a breakfast forum at the Union League Club of Chicago.
Asked about the Fed's options, Evans said forward guidance was the Fed's most important policy tool. Asset purchases also are tools, but temporary, Evans said.
The March U.S. employment report, which saw nonfarm payroll increase by a lower-than-forecast 88,000 new jobs, was "disappointing," Evans said. He would like to see monthly increases in nonfarm payroll of 200,000 or higher.
"We have to continue the monetary policy currently in place," Evans said, adding that the Fed needs to see "substantial improvement" before stopping asset purchases.
Asked about how, and when, the Fed would liquidate those purchases, Evans said unwinding the balance sheet was "years down the road."
Evans said while he sees U.S. economic growth improving to a rate of about 2.5% in 2013 and 3.5% in 2014, fiscal headwinds are limiting growth. The Fed needs to see "substantial improvement before it stops asset purchases" Evans said, and will keep interest rate targets at zero until the unemployment rate falls to "at least" 6.5%.
Fiscal uncertainty is a significant drag on the economy, and uncertainty about tax policy also appears to be holding back some U.S. corporate reinvestment, he said. "U.S. debt levels are much higher than we would like," he said, but added current U.S. long-term rates suggest they are not troubling.
Unemployment and inflation thresholds are a natural way to frame Fed actions, he said, and those dual mandates complement Fed policy. The Federal Open Market Committee's inflation target is 2.0%, with its threshold at 2.5%. Evans said he could not see the Fed altering its policies as long as U.S. inflation was under its target.
The world economies are continuing to grapple with deflation, Evans noted, with Japan a primary example. The Bank of Japan's recent move to lift its inflation target to 2% won't solve all its problems, Evans said, but it should help.
Evans said he would not comment about the recent steep decline in gold prices, and also would not give a prognosis on the U.S. dollar. However, he did note that the markets generally expected some dollar depreciation.
Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See
