Federal Reserve Bank of Chicago President Charles Evans said stimulus must continue “firing on all cylinders” until achieving sustained job growth, adding that he expects the Fed will keep buying assets at a pace of about $85 billion per month throughout this year.
That “is a good pace to maintain to provide that abundant confidence that we’re going to continue with accommodation,” Evans said today in a meeting with reporters in Chicago. “This is a point when we have to be patient and let our policies work.”
The Federal Open Market Committee said last week it will keep up the pace of bond buying even as some Fed officials voice concern over the costs and risks from the unprecedented program while others note a recent acceleration in job growth. Boston Fed President Eric Rosengren also said today he wants to continue the asset purchases through year’s end.
“I’m going to have a lot more confidence if I begin to see indications that growth is well above trend and it’s going to be sustainable,” Evans said at the Chicago Fed. “We have gone through this type of thing before, where we saw improvements in the labor numbers” only to watch job growth slow “to unhelpful levels.”
Since reducing its benchmark interest rate almost to zero in December 2008, the Fed has been experimenting with large-scale asset purchases to bolster growth. The central bank started its third round of quantitative easing in September, specifying neither an end date for the program nor a total amount officials plan to buy.
Policy makers have debated when to slow and halt the purchases as they weigh the efficacy, costs and risks of further expanding the record $3.21 trillion balance sheet. While Dallas Fed President Richard Fisher is among officials who have argued for an immediate tapering of the program, Evans isn’t alone in favoring a continuation of the current policy for some time.
Fed policy should pursue “faster economic growth and a more-rapid improvement in the unemployment rate,” Rosengren said in a speech in Manchester, New Hampshire. “We should continue our large-scale asset purchases of Treasury and mortgage-backed securities through this year -- although the amount may need to be adjusted up or down, depending on how the economic situation evolves.”
Quantitative easing is “beginning to work” with low interest rates bolstering housing and auto sales, Evans said today. Benefits still far outweigh the potential negative impact from the stimulus, and “it’s not even a close call at the moment,” he said.
Evans, who votes on monetary policy this year, has been among the most vocal advocates for easing within the Fed.
The economy will probably grow 2.5 percent this year and 3.5 percent next year, Evans said, noting his expectations for “a pretty good” environment despite cutbacks in government spending. The Fed should keep asset purchases “going through the end of this year at about this pace,” he said. Unemployment, at 7.7 percent in February, will be “in the vicinity of 7 percent” by the end of 2014, he said.
If job growth starts to falter, the Fed can continue buying assets for a longer period, he said. Another option is to accelerate purchases.
Evans dissented twice in favor of more accommodation in 2011. He was the first FOMC participant to propose that the Fed link its zero-rate policy to economic indicators, a suggestion that was adopted by the FOMC in December.