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 policy-setting Federal Open Market Committee said May 1 that it will keep buying $85 billion in bonds per month as it seeks to bolster growth and reduce joblessness. The U.S. central bank also said it would increase or decrease the pace of purchases in response to the labor market and inflation.
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.
Stocks fluctuated near a record today, with the Standard & Poor’s 500 Index little changed at 1,667.27 as of 3:05 p.m. in New York. The index has surged about 17 percent this year on signs of an accelerating economic rebound.
In response to a question from the audience, Evans said the Fed needs to be cautious about spillovers from its accommodative policy, and policy makers get regular reports on financial markets that can help spot excesses.
“So far it’s very difficult to argue that things are not functioning at least as well as they were before we undertook our asset purchasing programs,” Evans said. “And while asset values have gone up, it still looks relatively reasonable. But we’re going to continue to monitor that.”
Evans has been among the most vocal proponents of accommodative policy within the Fed in recent years. He was an early supporter of the Fed’s third round of quantitative easing and was the first to advocate tying the zero-rate policy to economic indicators.
The Chicago Fed chief said that he expects to see “self-sustaining growth” at “escape velocity” in 2014. “We would like to see inflation closer to our objective,” he said.
When it comes time for the Fed to begin shrinking its balance sheet, “we may or may not choose to sell” the assets it has bought, he said.
Reports since the FOMC’s April 30-May 1 meeting have signaled a brightening outlook for the U.S. consumer. The unemployment rate fell to 7.5 percent in April and employers added 165,000 jobs, Labor Department figures showed May 3. Retail sales advanced 0.1 percent in April, the Commerce Department said May 13.
Evans said he’d like to see monthly employment growth of 200,000 or more for at least six months before judging the labor market substantially improved.
“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.
Some Fed officials in recent months have signaled they favor tapering the quantitative-easing program in the next few months. San Francisco Fed President John Williams said last week that the Fed may want to reduce the pace of its purchases as early as this summer “if all goes as hoped.”