By Pedro Nicolaci da Costa
GREENVILLE, S.C., Sept 6 The U.S. Federal
Reserve can begin winding down its bond-buying stimulus later
this year, Chicago Fed President Charles Evans said on Friday,
adding he was still unsure about whether to start in September.
A U.S. employment report earlier on Friday showing
relatively weak job gains but a drop in the jobless rate in
August was just mixed enough to leave uncertain the prospect of
a reduction in the Fed's $85 billion monthly asset purchases.
"This is a period where it's even more important to go into
an FOMC meeting with an open mind," said Evans, referring to the
central bank's policy-setting Federal Open Market Committee.
"There's been cumulative progress on the economy. I can be
persuaded that there has been enough improvement."
Still, Evans says he would like to see growth pick up into
next year, which he expects, before pushing on with the pullback
in asset purchases.
"We can't get by with sub-2 percent growth," said Evans, who
is a voting member on the FOMC this year.
"For me, to start the wind-down, it will be best to have
confidence that the incoming data show that economic growth
gained traction during the third quarter of this year and that
the transitory factors that we think have held down inflation
really do turn out to be transitory," he said.
Evans was hopeful U.S. economic growth would finally break
above 3 percent by 2014 following several years of lackluster
recovery from a deep recession. He said inflation should slowly
creep higher toward the central bank's 2 percent objective.
Evans' remarks vacillated between cautious optimism and a
sense of disappointment at the anemic pace of recovery, which
has left unemployment at a still-elevated 7.3 percent. The
economy generated 169,000 jobs last month, less than the 180,000
median forecast in a Reuters poll.
"This neither accelerates nor derails Fed (tapering)
expectations," said Dave Roda, regional chief investment officer
at Wells Fargo Private Bank in Palm Beach, Fla.
Asked about the housing sector, Evans said he believes the
market is strong enough to withstand the recent spike in
INFLATION TOO LOW
Evans, a monetary policy dove who has tended to downplay
inflation concerns, said it was disappointing to see labor force
participation fall again, a sign that the unemployment rate
could be going down because of discouragement rather than
"The U.S. economy has a long way to go to return to healthy
normalcy," Evans said, adding the economy is still around 5
million jobs short of where it should be at this point.
He noted that inflation can be too low, not just too high,
and that the Fed should monitor price trends closely to make
sure inflation, currently hovering around 1.2 percent, moves
closer to the central bank's 2 percent target. He stressed this
objective was a target, not a ceiling, and that the Fed should
aim for that rate as an average over time, even though it has
undershot that level for several years.
Evans said he was worried about discouraged workers dropping
out of the labor force and that demographic factors alone cannot
explain the recent decline in labor force participation.
"It could take a long time for us to return to our 2 percent
inflation objective, and I will be monitoring our progress
closely when making my decision about appropriate monetary
policy," Evans said.