CHICAGO The Federal Reserve may need to wait until next year, possibly until March, before beginning to wind down its massive bond-purchase program, a top Fed official suggested on Tuesday.
"I'm not in a hurry myself to reduce the flow of purchase rate," Chicago Federal Reserve Bank President Charles Evans told reporters after a speech here. "A couple more (Fed policy-setting) meetings, to have greater assurance that the labor market improvement is sustainable, would be quite welcome."
All told, he said, the Fed's bond-buying program will probably add about $1.5 trillion or a bit more to the Fed's balance sheet since January 2013.
That's about $250 billion more than he had expected a few months ago, or the equivalent of about three additional months of bond-buying at the current pace. The Fed next meets in December, January and March to discuss policy.
Evans, one of the Fed's most dovish policymakers and a voter this year at the Fed's policy-setting table in Washington, told the Illinois Bankers Association earlier that the Fed was fighting a "ferocious" headwind of tight fiscal policy. Even with super-easy monetary policy the U.S. economy will likely only grow about 2 percent this year, he said.
The Fed's biggest challenge, he said, is convincing people that "we are here to deliver" on boosting jobs and bringing excessively low inflation back up to the Fed's 2-percent goal.
The way to do so, he said, is to continue with the Fed's $85 billion-a-month bond-buying program long enough to be sure that the gains so far are here to stay.
Since the Fed began the program 14 months ago, unemployment has fallen to 7.3 percent, from just over 8 percent.
But the large numbers of people who have given up looking for jobs altogether means that the labor market is actually weaker than the headline unemployment rate suggests, he said.
And in any case that rate itself is much higher than the 5 percent or 5.25 percent rate Evans said he considers normal.
There is a "good amount" of improvement in the labor market, he said, but "it still doesn't feel like it's sufficiently sustainable to me."
"I mean after all, if we were to begin to taper and then the labor market improvement had not been sustainable, I would have some regret over that decision," Evans told reporters. "I'd rather wait just a little bit longer and have more confidence in that."
Since last December the Fed has promised to keep interest rates at record lows at least until the jobless rate hits 6.5 percent as long as inflation expectations do not exceed 2.5 percent. Those so-called thresholds were Evans' own brainchild.
On Tuesday Evans said he would support lowering the unemployment threshold that would trigger a rethink of the low-rate policy, to as low as 5.5 percent, as his colleague Minneapolis Fed chief Narayana Kocherlakota suggested.
Specifically, he said, the Fed should consider lowering the unemployment threshold at the same meeting it announces a reduction in bond purchases. Doing so, he said, could help avoid an undesirable spike in long-term interest rates that could result if investors equate an end to bond buying with a faster return to normal short-term borrowing rates.
Lowering the threshold would be "credibility-enhancing", he said, because it would underscore, rather than undercut, the Fed's commitment to boost jobs.
(Reporting by Ann Saphir; Editing by Sandra Maler and Chizu Nomiyama)