Wednesday morning Chicago Federal Reserve president Charles Evans appeared on CNBC’s “Squawk Box.” We don’t often see a person in his position giving such an open interview on TV, and his observations are an interesting insight into what the powers-that-be are seeing.
I’ve summarized his comments below the video link.
–Predicts 3.5% economic growth for 2010, including the second half.
–Is cautious about reading too much into one or two sluggish monthly economic reports.
–Has gotten feedback from many companies suggesting that they currently have the right-sized workforce to meet demand, thus he thinks jobs growth will continue to be weak for months, as employers have no reason to do much hiring. Corporate managers have told him that they can meet future demand growth largely through increases in productivity, but he thinks it will eventually lead to more hiring.
–European financial woes do pose a risk for the U.S. recovery. It’s creating a “headwind” against our moderate recovery.
–Much of the business demand we’re currently seeing is replacement demand rather than expansionary demand.
–Uncertainty regarding future government policy is not a significant brake on business growth plans.
–The Fed will not be tightening monetary policy anytime soon because we are not seeing normal price stability (deflation risk) and we are under performing the Fed’s goal of promoting maximum employment growth.
–Inflation will remain under 2% (a target range) for the next three years or more.
–Thinks the Fed has taken extraordinary steps to fight deflation and doesn’t think it will do much more on that front unless conditions deteriorate.
–Doesn’t foresee jobs growth in the next year exceeding 100,000-200,000/month. Unemployment will remain historically high for years.
–Commercial real estate loans continue to pose a risk for financial institutions.
–Is wary of the government’s ability to effectively promote growth through additional fiscal stimulus at this point in the economic cycle. However, he believes last year’s large stimulus bill was useful and necessary in helping the economy bottom out. Among other effects, it provided a psychological reassurance when it looked like we might fall into the abyss. It’s difficult to quantify the benefit of the stimulus bill because it’s hard to prove what didn’t happen in the alternative.
–Says there’s nothing “average” about the recent recession and ongoing recovery, thus comparisons to the time frames of previous recoveries are not very illuminating on what we should expect today. Thinks we will have a prolonged period of sluggish growth compared to our previous V-shaped recoveries.
–Is cautious about implementing any additional short-term stimulus programs that essentially just push demand forward (e.g., first-time home buyer tax credit).
–State budget woes pose a clear “headwind” to national economic growth.