Fed Bank CEO: Ideal inflation, jobless levels not expected until 2016

Fed Bank's Charles Evans delivers recipe for strong economy to CSU group

tadams@ledger-enquirer.comMarch 10, 2014 

Tony Adams/tadams@ledger-enquirer.com Charles Evans, left, and his brother, Bill Evans, at the Columbus State University financial luncheon held Monday by the Turner College of Business. Charles Evans, president and CEO of the Federal Reserve Bank of Chicago, was the featured speaker. He is the brother of Bill Evans, owner of the La-Z-Boy Furniture Galleries store in Columbus.

It’s not everyday that a Federal Reserve Bank president and chief executive officer lets a group of Columbus business and community leaders know what he’s thinking. Of course, it’s not everyday that the Fed executive is the brother of a local resident.

Such was the case Monday at Columbus State University, with Charles Evans, head of the Federal Reserve Bank of Chicago, laying out what he believes it will take to ultimately bring the U.S. economy up to full speed.

“The single simple summary message of monetary policy, our strategy today, my opinion, is that we need more customers walking through the doors of retail and business enterprises, both real physical enterprises and web-based virtual enterprises, so that we can get more economic activity and we can get to a better situation,” Evans told a packed Blanchard Hall at CSU’s Cunningham Center.

That basic message was delivered to an audience that included Bill and Cindy Evans, owners of the La-Z-Boy Furniture Galleries store at Columbus Park Crossing. Charles is Bill’s younger brother.

“If he can get the housing sales up and get more money in everybody’s pocket, that’s going to help me at La-Z-Boy,” Bill Evans said after the lunch session, which was held by CSU’s Turner of College of Business.

More consumer spending is part of the basic formula for an economic rebound, Charles Evans told those in attendance. But, he said, it’s a bit more complicated as the Federal Reserve Bank marks its 100th anniversary on the heels of the greatest economic downturn in U.S. history outside of the Great Depression in the 1930s.

The Fed Bank executive, whose region covers five Midwestern states, said the U.S. monetary policy makers should stick to an inflation rate of 2 percent, while it should strive for an unemployment rate of around 5.5 percent, give or take. They now are at 1.6 percent and 6.7 percent, respectively.

Such bellwether indices hitting those lower levels would likely goose the U.S. economy, making it not too hot or too cold, he said, thus laying the ideal foundation for more job creation, wage increases and, eventually, more spending on goods and services. In essence, the economic pump would be primed.

“So it’s important when we say 2 percent, we need to hit it,” Evans said. “We need to defend our inflation objective when it’s too low. We need to defend it when inflation’s too high.”

Unfortunately, such a scenario, even with the proper moves by the policy-making Federal Open Market Committee, likely won’t materialize until the year 2016, even with an economy steadily improving, according to a “bulls-eye accountability” chart shown by Evans Monday.

“I really thought this year was the one that we were going to take off. But I’m still optimistic that we’re going to get closer to 3 percent than 2.5 percent,” said the Chicago Fed Bank chief, referring to the U.S. economic growth rate. “The (lingering frigid winter) weather’s been a factor. It’s not so bad down here, but where I’m from it’s really been crushing.”

Evans noted several factors weighing on the economy, which officially exited the Great Recession in mid-2009. Households still have too much debt, while small businesses in particular continue to struggle with “financing issues.” That’s countered somewhat by larger corporations, many of which have accessed low-cost capital to improve their balance sheets.

“Households still will need to work off some of their debt that’s hanging over them and holding back some of their consumption,” he said. “And I think if the employment situation was to pick up more rapidly, wages would go up, income would go up, there would be more customers walking through the door. We’d be that much closer to all of that (debt) being worked off.”

Finally, Evans said, a key component of recovery should continue to be the Federal Reserve Bank communicating the moves it makes in order to prevent shock waves from rippling through the U.S. financial markets as they are announced.

That’s something he termed a “big accomplishment” of Federal Reserve Chairman Ben Bernanke, who retired Feb. 3 after guiding U.S. monetary policy for eight years. Federal Reserve Vice Chair Janet Yellen, an accomplished economist, succeeded him.

Evans, the 9th Federal Reserve Bank of Chicago president, will be among those gathering with Yellen next week to discuss U.S. interest rates. On Monday, he said getting the thoughts of business people, like his brother Bill, is part of the information-gathering process that goes into the equation.

“I talk to a lot of business people. I make a lot of phone calls before the (Federal Open Market Committee meeting). We have advisory councils of business people in our five-state region,” Charles Evans said. “When I’m talking to my brother, he’s in the furniture business, so I’m always curious from a personal standpoint how well things are going for him. And I do wonder how that tracks against some of the other information that I’ve been getting.”

Bill Evans, who gets to see his brother (another sibling, Jimmy, lives in Pittsburgh) a couple of times a year, no doubt pays attention to how those high-level financial meetings go. After all, he said, “it’s been tough” for businesses since the financial crisis hammered the overall economy more than six years ago.

“But it’s starting to pick up,” the La-Z-Boy store owner said. “The traffic’s starting to pick. We still have a ways to go, but I feel positive about it.”

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