MNI POLICY: Fed Prudent To Add A Little Insurance: Evans

--Chicago Fed Head Says Little Risk From Lower Rates

By Greg Quinn

     (MNI) - The surprise U.S. interest-rate cut was a prudent move to curb the

risk of consumer and business spending drying up during the coronavirus

outbreak, Chicago Federal Reserve President Charles Evans said Tuesday.

     "We are looking at the current situation, we are seeing heightened risk

around the world, supply chains are being affected," Evans said Tuesday night

during a talk at the University of Illinois. The thinking reflected the view

that "it would be prudent if we added a little more insurance."

     There is little risk from cutting rates when inflation has lagged the Fed's

2% target and there could be gains from pushing the solid labor market even

further, Evans said. "What could go wrong if we cut rates at this point?" he

asked. "What is too accommodative?"

     "Is it likely that inflation is going to go to 2.5% on the strength of what

we are doing now" Evans asked. "I just don't see it," he said, adding that any

period of above-target inflation could be seen as welcome "symmetry." 

     "My expectation is that interest rates are going to remain low," Evans

said. In response to a question about normalizing Fed policy, Evans mentioned a

neutral rate of between 2.5% and 2.75% and said. "I'm not expecting to go there

anytime soon."

     The Fed voted unanimously Tuesday to cut its benchmark rate by 50bps, the

first -- and the largest -- move between regular meetings since the global

financial crisis. Chair Jerome Powell announced the move hours after helping

lead a call with G7 finance ministers and central banks that called for

cooperation without offering specific new stimulus. The COVID-19 outbreak that

has spread from China to countries including Iran, Italy and the U.S.

     --CUT HELPS

     How health authorities work to contain COVID-19 is the biggest driver of

how consumers and businesses behave, but a rate cut helps at the margin with

workers or entrepreneurs to bridge any lost income, Evans said. 

     The virus outbreak could leave an "imprint" on the economy for half a year,

he said, adding there are other positive forces at play for the U.S.

     "The economy continues to be strong, the fundamentals continue to be good,"

he said. The U.S. had also been benefitting from reduced trade uncertainty

following the Phase One deal with China and a renegotiation of Nafta, he said. 

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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