Fed Is ‘Badly’ Missing Goal on Employment, Evans Says

Federal Reserve Bank of Chicago President Charles Evans said the central bank is falling short of its mandate for full employment and he hasn’t decided whether its $600 billion Treasury-purchase program should be expanded.

“We’re monitoring the economy and inflationary pressures, and so I’m keeping an open mind about the $600 billion and beyond that,” the regional bank chief told reporters after a speech in Denver. “The hurdle is pretty high” for adjusting the program, he added.

The Fed’s Open Market Committee isn’t willing to scale back its purchases even amid improvements in the economy, according to minutes of the committee’s meeting last month. Policy makers are focused on a 9.4 percent jobless rate and an inflation rate that is lower than they prefer, records of the gathering show.

Employers in the U.S. added fewer jobs than forecast in December, confirming Chairman Ben S. Bernanke’s view that it will take years for the labor market to heal. Payrolls increased 103,000, compared with the median forecast of 150,000 in a Bloomberg News survey, Labor Department figures showed today in Washington.

“In order to foster a return of economic conditions consistent with our dual mandate, we need to keep short-term nominal policy rates low for an extended period,” Evans, who votes on the FOMC this year, said during a panel discussion at the Allied Social Science Associations’ annual meeting. “I view our recently expanded program of asset purchases as a complementary policy tool in this regard.”

Near-Zero Rates

During the Fed’s Dec. 14 meeting, officials affirmed their pledge to purchase $600 billion in Treasury securities through June. The gathering also marked the two-year anniversary of near-zero interest rates, as the central bank reiterated its plan to keep rates “exceptionally low” for the foreseeable future.

Growth will probably average about 4 percent during the next two years, with the unemployment rate about 8 percent at the end of next year, Evans said in his speech. He told reporters that it’s conceivable the FOMC may decide no further purchases are needed, while keeping interest rates low “for some time,” as the economy recovers.

Evans, 52, has led the Chicago Fed since September 2007 and is one of only two regional Fed presidents who vote every other year on the FOMC, along with Cleveland Fed President Sandra Pianalto.

Easier Monetary Policy

In public remarks last year, the Chicago Fed president made some of the strongest comments by a Fed official in favor of easier monetary policy. He told the Wall Street Journal in October the central bank needs to do “much more” to help the economy. Later that month, he said in a speech in Boston that the U.S. is in a “bona fide liquidity trap.”

“I don’t think there’s much question that we’re missing badly on our employment mandate,” Evans said today. Various rules of thumb for monetary policy “would indicate that substantial policy accommodation continues to be warranted.”

Treasuries rose, while U.S. stocks trimmed a sixth weekly gain, after the jobs report today. The yield on the five-year note tumbled 10 basis points, or 0.10 percentage point, to 1.97 percent at 5:11 p.m. in New York, according to BGCantor Market Data. The Standard & Poor’s 500 Index slipped 0.2 percent to 1,271.5.

In response to questions after his speech, Evans said that paying interest on bank reserves remains a “useful tool” for the Fed and yet it “may be worthwhile” to reexamine the policy. He also said he doesn’t expect inflation to rise for a few years and rising long-term interest rates appear to reflect improving financial and economic conditions.

To contact the reporter on this story: Vivien Lou Chen in Denver at vchen1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net