MNI: Evans Says Several Years Needed to Reach Employment Goal

It will take several years to move towards policy makers' full employment goal and monetary policy will likely need to remain accommodative over that time, Chicago Fed President Charles Evans said Wednesday.

"We still have quite a way to go before we return to pre-pandemic levels of employment, but given the growth prospects for the economy, I am confident that we will be making good progress toward our inclusive employment objective over the next couple of years," Evans said.

There is also no sign inflation will get out of control, or even of a needed rise in expectations reflecting the Fed's quest to generate price gains averaging 2%, he said in the text of a speech. Inflation expectations remained below 2% even before the pandemic drove the unemployment rate down to 3.5% and investors are still buying 10-year Treasuries at a 1.6% yield, he noted.

"I hope we do get some feedback between actual inflation and inflation expectations as we move through the year. If expectations move up, then we could make some real progress toward reaching our inflation target," Evans said. "I would not be concerned about inflation moving persistently too high unless we saw some quite outsized movements in financial market pricing at the longer maturities or in survey-based measures of inflation expectations."

FED FUNDS NEAR ZERO

Evans backed the views of his FOMC colleagues that the fed funds rate could remain near zero thorough 2023, even with growing optimism the U.S. economy will keep posting strong growth through the rest of this year on fiscal relief and progress with Covid-19 vaccinations. He cited research from a Chicago Fed researcher who earlier told MNI that most economic models show little chance that any major inflation linked to President Joe Biden's fiscal plans will be persistent.

"I see the need for continued accommodative monetary policy to reach our goals," Evans said.

Late last week, former NY Fed President Bill Dudley told MNI the Fed may need to act quickly and raise rates to 3.5% or more as the new policy framework would generate lags in responding to inflation and the current environment suggest an almost 'nil' chance of a soft-landing for the economy.