Fed's Evans says labor market weakness pervasive
Weak U.S. labor markets are likely to justify easy money policies for quite a while longer, a top Federal Reserve official said on Tuesday.
Labor market issues ... lead me to think this accommodation will likely be appropriate for some time, Chicago Federal Reserve Bank President Charles Evans said in remarks to the National Association for Business Economics.
With a sluggish economic recovery, the Fed's promise to hold rates very low for a long time should be seen as a signal it will do so for the next three or four meetings, said Evans, who is not a voter on the central bank's rate-setting panel this year. The Fed meets approximately every six weeks.
Beyond that ... I think six months is a good time period to say I think we'll have accommodative policy like we have today, he said. If circumstances were to change, the Fed could change course sooner without surprising markets, he said.
Analysts noted that Evans' some time formulation seemed to stray from the Fed's language pledging exceptionally low levels of the federal funds rate for an extended period.
Asked about the apparent shift, Evans said he had not intended to signal any move to lift the promise.
We probably didn't think very carefully about parroting the language in the statement, he told reporters. If I had been making a reference to the statement itself I would have been quite comfortable using the extended period language, that rates can remain low for an extended period of time.
The economy grew at a robust 5.9 percent in the last three months of 2009, fueling recovery hopes and contributing to expectations the Fed may begin the process of tightening financial conditions after the financial crisis in generations.
But Evans made clear that despite some signs of hope the worst is over for the job market, it will be along road back to stability.
While the path of the unemployment rate conforms to what might normally be expected after a painful recession, there are troubling indicators such as the number of people outside the work force and the length of time workers remain unemployed.
Once you look past the headline numbers, however, some other labor market indicators are unusually weak, he said.
Policy-makers may be accepting a higher level of unemployment -- around 5.25 percent as opposed to around 4.75 percent -- as their goal for full employment in the future as a result of lingering problems from the deep recession, he said.
Evans further said that despite debate over how much slack there is in the economy, high unemployment levels make it undeniable that output is well below the economy's potential.
He also argued that the Fed has taken its extensive purchases of long-term assets, which are scheduled to end this month, as far as has been useful in supporting the economy.
Adding to the Fed's extensive assets would further complicate its exit strategy in the future, he said.
However, he left open the door to further asset purchases if economic conditions change.
The U.S. unemployment rate held steady at 9.7 percent in January, and the Fed -- the U.S. central bank -- is expected to use its policy meeting next week to renew its low-rate, long-time promise as long as the jobless rate remains high and inflation stays tame.
Evans' comments contrast with those of other policy makers who believe the recovery is well-enough established for the Fed to drop that pledge. Kansas City Federal Reserve Bank President Thomas Hoenig, a voter on the Fed's policy-setting Federal Open Market Committee this year, dissented against keeping the language in January.
Another Fed voter, St. Louis Fed President James Bullard, said last week he was losing patience with the extended period language, but stopped short of saying he would vote against maintaining it.
(With additional reporting by Emily Kaiser)
(Editing by Chizu Nomiyama)
© Copyright Thomson Reuters 2024. All rights reserved.