Federal Reserve Bank of Chicago President Charles Evans, an outspoken advocate of pressing on with Fed stimulus, said the central bank should not begin reducing the pace of asset purchases as the data used to gauge the economy’s health stopped during the government shutdown.
“Only the data can tell us how much progress we’ve made and they aren’t saying much right now,” Evans said today in a speech prepared for delivery in Madison, Wisconsin. “The data available in September were inconclusive, and since then, incoming information has been silenced with the federal government shutdown.”
The 16-day shutdown, which ended early this morning when President Barack Obama signed a bill reopening the government, furloughed hundreds of thousands of workers and shaved 0.6 percent from fourth-quarter 2013 economic growth, taking $24 billion out of the economy, according to an estimate from Standard & Poor’s yesterday. Affected agencies included the Department of Labor and Department of Commerce, which produce the key economic reports on inflation, growth and unemployment.
The Fed should continue the $85 billion monthly asset purchase program, known as QE3 for the third round of quantitative easing, until economic reports confirm whether the economy has improved sufficiently, Evans said.
“It is not yet time to remove accommodation,” Evans said at the 2013 Wisconsin Real Estate and Economic Outlook Conference. “The data are still not definitive enough to say that now is time to adjust the QE3 flow purchase rate.”
In response to audience questions, Evans said the Fed would likely need “a couple of meetings to assess” the economy and await data that present a picture of how the economy weathered the shutdown.
Evans also told the audience he was not prepared to advocate increasing the rate of purchases. “The decision to actually increase the flow rate would be a very challenging one to make at the moment, given we’ve been doing this program for so long,” he said.
The central bank contemplated tapering its purchases at a meeting Sept. 17-18, yet decided to press onward. Most economists were surprised when the central bank opted to continue the full program. Participants in a Bloomberg survey had expected the Fed to reduce the program to $80 billion a month at the meeting.
Evans is not alone in seeing the shutdown further postponing the Fed’s tapering. Dallas Fed President Richard Fisher, who has called for reducing bond purchases, said fiscal discord has undermined the argument for tapering.
Talk of cutting bond purchases has “all been swamped by fiscal shenanigans,” Fisher told reporters after a speech today in New York.
Evans said the program should continue until the labor market is healthier and more people are participating in the labor force.
“I also would need to see more steady, solid growth in gross domestic product to be confident that the labor market gains would not be undone by a drop in businesses’ demand for labor,” Evans said.
The unemployment rate fell to 7.3 percent in August, the lowest since December 2008. The decline has been accompanied by discouraged workers abandoning the labor force entirely. Participation in the labor market declined to 63.2 percent in August, the lowest since 1978, according to Bureau of Labor Statistics data.
The government had planned to release its jobs report updating statistics on the labor market on Oct. 4. The report was postponed by the shutdown and has not been rescheduled for release.
Fed presidents rotate voting on monetary policy with Evans, 55, voting this year.
Evans said he expects the economy to improve as fiscal drag wanes, forecasting growth of about 3 percent in 2014 and the unemployment rate dropping below 7 percent by the end of next year.
“The economic fundamentals are much improved,” he said. “The cyclical repair process is well under way.”