MNI POLICY: Evans Says Yield Rise Can Signal Policy Success

Chicago Fed President Charles Evans said Thursday that rising bond yields can be a signal of policy success in helping the economy rebound, and doubly so if they reflect higher inflation expectations.

"An important part of success would be that the real economy is growing, real interest rates are growing, and so longer-term yields are going up," he told reporters after a speech when asked by MNI if he worries about a bond market tantrum. "The real side of that, if they go up because inflation expectations are also going up and then that's consistent with our objective, then double good."

While bond yields contain a lot of information to disentangle, so far the rise in Treasury yields seems to reflect optimism in the economy's path, he said, and 10-year Treasury yields are also still remarkably low. Evans also said that while sudden and sharp movements and strained government debt pricing would be a concern, there's little evidence that doubts about sustainable fiscal policy are shaking up risk premiums.

There's reason for optimism the U.S. economy will gather a lot of strength this year, Evans said, but getting inflation up to something like 2.5% for a year could be the big challenge. On the pace of QE he also referred back to Chair Jerome Powell's comment that it's too soon to even think about tapering and underlined the need for real data showing "substantial progress" in the rebound.