Diane Swonk, Chief Economist
Mar. 9, 2010 – 9:25 a.m. CT
Fed's Evans Underscores Need for Accommodation
Chicago Fed president, Charlie Evans, underscored in his comments to the National Association for Business Economics today, that unemployment remains way too high and inflation well below his own threshold to consider raising rates anytime soon.
He also underscored, however, that changes in the labor market – particularly, the large percentage of the long-term unemployed – could dramatically complicate policy decisions in the medium-term. The fear is that the Fed will have to raise rates rapidly when unemployment is still much higher than they would like.
The Bottom Line: Comments by Charlie and Brian Sack of the New York Fed yesterday confirmed two things: first, that the Fed is doing all that it can to prepare and practice its exit strategy, which will include a major reduction in their balance sheet and an increase in rates; and, second, that the Fed is in no hurry to implement that exit anytime soon. They are hopeful that they can stop buying mortgage-backed securities at the end of March – their research suggests that they are holding enough to give it a try – but are also willing to reinstate the program if mortgage rates surge upon its completion.
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