Snip ~ "The U.S. economy is very strong," said Evans. Also, he said that lawmakers' attempts to reduce longer-term federal deficits is a hopeful sign for the dollar's "special relationship with foreign currencies."March 28, 2011
Fed Evans: QE2's $600 Billion 'Just About The Right Number'
COLUMBIA, S.C., The Federal Reserve's planned purchase of $600 billion in U.S. Treasurys by the end of June seems like it is "just about the right number," a top Fed official said here Monday. Chicago Federal Reserve Bank President Charles Evans told reporters it would be "high hurdle" for the economy to improve sufficiently enough for him to support an earlier-than-scheduled completion of the Fed's current round of quantitative easing.
He said the so-called QE2 has had a "beneficial" impact on the economy, although he said that employment growth is too slow and the economy does not face significant inflation pressures. Evans is a voting member of the rate-setting Federal Open Market Committee this year. Evans comments reveal a split among Fed members heading into the FOMC's policy-setting meeting in late April.
That will be the last regularly scheduled meeting that the Fed can choose to halt QE2ahead of schedule. Friday, FOMC voting member Charles Plosser, president of the Philadelphia Federal Reserve Bank, jolted financial markets when he warned that inflation pressures would warrant the draining of liquidity from the financial system in the "not-too-distant" future.
Evans said Monday he would consider a change in policies if core personal consumption expenditures, the Fed's preferred inflation measure, reach 1.5% on a year-over-year basis. Data released Friday showed core PCE, which excludes volatile food and energy prices, was up 0.9% in February, compared with the same period a year ago.
"We're some ways away" from reaching 1.5%, said Evans. Upon the scheduled completion of QE2, "we'll continue to have a high amount of accommodation," said Evans. He said he anticipates the Fed will reinvest the proceeds of maturing assets for several months until the economy is strong enough to allow the central bank to sell its assets. Evans made his comments after delivering a lecture at the University of South Carolina, where he used to serve on the business school's faculty. Responding to audience questions, Evans said he sees no danger in the U.S. dollar relinquishing its status as the desired currency during times of crisis.
"The U.S. economy is very strong," said Evans. Also, he said that lawmakers' attempts to reduce longer-term federal deficits is a hopeful sign for the dollar's "special relationship with foreign currencies." "We're well positioned to continue our role in that capacity," the Chicago Fed chief said.
He acknowledged, however, that politicians still have "a lot of work to do" in grappling with deficits at the federal and state government levels. He rejected the notion that the Fed is trying to monetize government debt through easy money policies that boost inflation.
"Inflation is not on the near-term horizon," Evans said. In the politically conservative southern U.S., Evans defended Fed Chairman Ben Bernanke for "special lending" programs adopted after the collapse of Lehman Brothers and American International Group Inc. (AIG) in 2008.
Evans acknowledged that the "bailout" is considered a "dirty word," but he said that Bernanke helped to calm ailing financial markets. "Free markets are unbelievably important, but sometimes they need a little help," Evans said.
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