CHICAGO The U.S. Federal Reserve would do best to keep buying assets at its current $85-billion-a-month pace until the jobs market is on firmer ground, a point that probably won't be reached until the end of the year, a top Fed official said on Wednesday.
Cutting back sooner on bond purchases, as some top Fed officials have advocated, could undercut what has so far been a successful program, Chicago Fed President Charles Evans told a small group of reporters.
"I want to be really careful in thinking about what the implications of reducing the flow will be -- I want to make sure that it wouldn't be inferred as premature, or a little weak in the knees," said Evans, a voting member of the Fed's policy-setting panel this year.
If jobs growth proves to be very strong for several more months running, the Fed could pare its purchases, he said. If growth slows in the second quarter and the jobs market worsens, the Fed may need to do more, he said.
"The modal part of my forecast has asset purchases going through the end of this year at about this pace," he said.
The Fed last week said it would continue its program of quantitative easing until the outlook for the labor market improves substantially.
So far, Evans said, the bond-buying has been effective, and ultimately he believes the Fed will curtail the program because of improvements in the jobs market, rather than because of a rise in costs or risks, as some other Fed officials have warned.
But Evans, for his part, still sees the end of bond-buying at least several months away and likely more, repeating his view that he would want to see the U.S. economy add more than 200,000 jobs every month for at least six months, along with a continued decline in unemployment and above-trend growth in GDP.
"I think it's been very successful," he said of the Fed's asset purchases, which are aimed at boosting hiring. "I can't see that those are the parameters for doing less."
Evans said he sees the U.S. economy growing 2.5 percent this year, despite a one-percentage point drag from tight fiscal policy, and 3.5 percent next year. That growth should help push unemployment, now at 7.7 percent, down to the vicinity of 7 percent by the end of 2014.
Jobs growth has averaged more than 200,000 each month for the past four months, a "favorable" trend, he said. But January's gain was a weak 119,000 jobs, making Evans wary of declaring victory too soon.
"I suppose it is possible that along the way you judge you have enough confidence that things are going to continue to improve, and you adjust the flow" of monthly purchases, Evans said, adding that a couple of months of very high jobs growth of 300,000 or more "could get my attention... would be a big deal."
The Fed has tapered other asset-purchase programs, he noted.
Still, he said, "I prefer and think it's best that we continue to provide strong confidence that we are going to be doing the appropriate accommodative policies to get the economy moving strongly again."
Fed Chairman Ben Bernanke signaled last week that the central bank may adjust the rate of its asset purchases in sync with progress on the jobs front.
Several other Fed officials have also embraced the idea of tapering asset purchases when the time comes, although they differ on the timing, with the hawkish presidents of the Dallas and Philadelphia Federal Reserve banks calling for immediate cutbacks in purchases.
To Evans, the fact that inflation is under-shooting the Fed's 2-percent target is evidence that "our policies are more restrictive than we would like," he said.
But he stopped short of calling for more bond purchases.
"Our current policies are appropriate and I think that they are working," he said. "They are about as good as we can do at the moment."
The Fed last week also renewed its pledge to keep short-term interest rates near zero until the unemployment rate drops to 6.5 percent, as long as inflation does not threaten to breach 2.5 percent.
Evans was a chief architect of the Fed's decision to tie its low-rate policy to specific economic thresholds, pushing for such a move for more than a year before the central bank adopted the idea.
On Wednesday he said the Fed could continue to keep rates low until unemployment fell below the 6.5 percent threshold, and even below 6 percent, if inflation continued to stay a half a percentage point below the Fed's 2 percent target.
But if the inflation outlook does creep up above 2 percent, he said, "I would imagine... it would not be long before the rates increase." (Reporting by Ann Saphir; Editing by Chizu Nomiyama)