(Reuters) - The U.S. Federal Reserve may need to keep up its purchases of bonds through the end of this year or into the next, and may even need to add to the program if fiscal restraint is bigger than expected, a top Fed official said on Thursday.
“I think we have pretty appropriate policies in place right now,” Chicago Fed President Charles Evans said in an interview with CNBC. Evans said he expects U.S. economic growth of about 2.5 percent this year, even accounting for the drag from a tighter government budget.
“If we have more of a drag this year that’s more of a headwind, that might mean we have to do a little bit more,” he said.
The U.S. central bank last month left in place its monthly $85 billion bond-buying stimulus plan, reiterating its pledge to keep up purchases until there is substantial improvement in the labor market outlook.
Evans, a voting member this year on the Fed’s policy-setting panel, repeated his view that he would need to see a gain of 200,000 jobs a month for about six months in order to dial back the program.
He also said he would want to see above-trend GDP growth and a decline in the unemployment rate, now at 7.9 percent.
While he does not expect unemployment to fall to around 7 percent until late 2014, the Fed could ease up on its purchases before then, he said.
Comparing the Fed’s asset-buying program to loading a runner with carbohydrates before a half-marathon, he said: “I tend to think it might be possible to turn off the quantitative easing -- we get off to a fast start on the run, we build momentum, and then we’re just going to keep going, it’s self-sustaining -- we wouldn’t have to continue to carb up along the run, and so that’s why we might be able to stop before 7 percent. But I‘m open-minded.”
Evans pointed to auto sales and improving housing market as evidence the asset-purchase program is working to boost the economy, which he expects will eventually bring down unemployment.
“Once we get momentum and achieve escape velocity, either later this year or 2014, I think unemployment will move down with momentum,” he said.
Evans said he does not think that unemployment will fall to 6.5 percent before mid-2015, suggesting he believes the Fed will need to keep rates low until at least then.
“The quantitative easing is to get it started; we are going to do that until we are clear that the labor market outlook is improved: that might be half a year, might be a whole year,” he said. “I‘m optimistic that the momentum is going to pick up this year.”
Reporting by Ann Saphir; Editing by Chizu Nomiyama