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CNBC Exclusive: CNBC Transcript: Chicago Federal Reserve Bank President Charles Evans Sits Down with Steve Liesman Today on CNBC

When: Today, Thursday, February 7th at 8:40AM ET

Where: CNBC's "Squawk Box"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Federal Reserve Bank of Chicago President Charles Evans today on CNBC's "Squawk Box" (M-F, 6-9AM ET). Here is a link to the embeddable video: http://video.cnbc.com/gallery/?video=3000146496. Additional excerpts of the interview will air during "Squawk on the Street" (M-F, 9AM-12PM ET) and "Power Lunch" (1-2PM ET) and video of the interview will be posted on CNBC.com.

All references must be sourced to CNBC.

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STEVE LIESMAN: I'M HERE WITH CHICAGO FED PRESIDENT CHARLIE EVANS. CHARLIE THANKS FOR JOINING US.

CHARLES EVANS: THANKS FOR BEING HERE.

LIESMAN: SO YOU SORT OF STARTED A REVOLUTION IN CENTRAL BANKING ABOUT A YEAR OR SO AGO WHEN YOU STARTED TALKING ABOUT USING ECONOMIC TARGETS. THE FEDERAL RESERVE IS NOW USING IT. THEY'RE TALKING ABOUT USING IT IN ENGLAND. THEY STARTED TO USE IT MORE IN JAPAN. ARE YOU SATISFIED WITH THE WAY THE FEDERAL RESERVE HAS IMPLEMENTED SO FAR?

EVANS: I THINK WE HAVE PRETTY APPROPRIATE POLICIES IN PLACE RIGHT NOW. I THINK THAT MOVING INTO ECONOMIC CONDITIONALITY, CLEAR CONDITIONALITY, AS TO HOW LONG OUR POLICIES WILL BE IN PLACE. THE ONE THING WE REALLY WANT TO MAKE SURE EVERYBODY UNDERSTANDS IS MONETARY POLICY WILL CONTINUE TO BE ACCOMMODATIVE UNTIL THINGS IMPROVE SUBSTANTIALLY, AND WE GET OUT OF THIS SLOW GROWTH ECONOMY. SO I'M EXTREMELY PLEASED WITH WHERE WE ARE.

LIESMAN: WHEN YOU SAY CLEAR, THERE ARE SOME WHO SAY IT'S ANYTHING BUT. IT'S CLEAR WHEN IT COMES TO RAISING INTEREST RATES. BUT SOME ARGUE THAT IT'S NOT CLEAR WHEN IT COMES TO QUANTITATIVE EASING. YOU'RE USING THIS PHRASE SUBSTANTIAL IMPROVEMENT IN THE LABOR MARKET. IS THAT CLEAR TO YOU?

EVANS: IT'S QUALITATIVE. I TEND TO FAVOR QUANTITATIVE MARKERS. BUT IT IS QUALITATIVE AND I THINK THAT'S SUFFICIENT. I LOOK AT IT THIS WAY, WE'RE OUT FOR A RUN, WE'RE NOT GOING TO RUN A MARATHON. IT'S ABOUT A HALF MARATHON. AND WE'RE GOING TO SEE HOW IT FEELS WHEN WE'RE DONE. SO WE'RE GOING TO KEEP POLICY LOW UNTIL THE UNEMPLOYMENT RATE IS 6.5%. IF WE STILL FEEL GOOD, YOU KNOW, WITH THE RUN, WE MIGHT GO A LITTLE BIT LONGER. WE'D LIKE TO GET OFF TO A GOOD START. WE'RE LOADING WITH CARBS, TAKING THE ENERGY BARS, WE'RE GOING TO GET THIS OFF SO THE FIRST COUPLE OF MILES IS AT A GOOD PACE THAT CONTINUES LIKE THAT. SO THE QUANTITATIVE EASING IS TO GET IT STARTED. WE'RE GOING TO DO THAT UNTIL WE'RE CLEAR THAT THE LABOR MARKET OUTLOOK HAS IMPROVED. MIGHT BE HALF A YEAR, MIGHT BE A WHOLE YEAR, COULD BE LONGER. I'M OPTIMISTIC THAT MOMENTUM IS GOING TO PICK UP THIS YEAR.

LIESMAN: LET'S TALK ABOUT WHAT SUBSTANTIAL IMPROVEMENT LOOKS LIKE. THE LAST TIME WE MET BACK IN OCTOBER YOU TALKED ABOUT JOB GROWTH OF 200,000 PER MONTH OVER A SIX-MONTH PERIOD. IS THAT YOUR METRIC FOR SUBSTANTIAL IMPROVEMENT?

EVANS: I THINK THAT'S A GOOD BENCH MARK. I THINK THAT'S COMPLETELY ACHIEVABLE. THE LAST THREE MONTHS HAVE AVERAGED 200,000 ON PAYROLLS. WE NEED MONTH AFTER MONTH OF 200,000. I'D SAY, FOR SIX MONTHS, THAT WOULD BE GOOD. BUT WE ALSO NEED GROWTH ABOVE POTENTIAL THAT REINFORCES THAT LABOR MARKET IMPROVEMENT. AND WE NEED TO REALLY SEE THE UNEMPLOYMENT RATE TURN IN ITS DIRECTION. IT PICKED UP A LITTLE BIT TO 7.9%. WE OUGHT TO SEE IT MOVING DOWN.

LIESMAN: SO THIS IS REALLY THE KEY IS THE UNEMPLOYMENT RATE. TELL US HOW YOU THINK ABOUT IT, CAUSE THERE'S DIFFERENT THINGS THAT ARE AFFECTING THE UNEMPLOYMENT RATE. YOU HAVE THE PARTICIPATION RATE, THE PERCENTAGE OF THOSE IN THE WORKFORCE WHO ARE ACTUALLY -- POPULATION AND PART OF THE WORKFORCE, THAT SEEMS TO BE GOING DOWN. PART OF THAT IS BECAUSE OF AGING. PART OF IT -- HOW DO YOU THINK ABOUT THE UNEMPLOYMENT RATE? COULD YOU IMAGINE 200 OR 300,000 JOBS A MONTH BUT INCREASING UNEMPLOYMENT RATE AND WOULD THAT CAUSE YOU TO DIAL BACK ON STIMULUS?

EVANS: I THINK THE UNEMPLOYMENT RATE CAME DOWN A LITTLE MORE QUICKLY IN THE LAST YEAR THAN WE HAD THOUGHT. SO THERE ARE A FEW ABNORMALITIES THERE. I THINK IT IS SORT OF CORRECTING ITSELF BUT I THINK ONCE WE START GETTING GROWTH ABOVE TREND, CLEARLY ABOVE TREND, QUARTER AFTER QUARTER, THE UNEMPLOYMENT RATE IS GOING TO MOVE DOWN, PEOPLE WILL BE COMING BACK INTO THE LABOR FORCE BUT THEY'LL BE FINDING JOBS AND THINGS WILL BE PICKING UP. SO ONCE WE GET MOMENTUM, AND WE ACHIEVE ESCAPE VELOCITY EITHER LATER THIS YEAR OR 2014, I THINK UNEMPLOYMENT WILL MOVE DOWN WITH MOMENTUM.

LIESMAN: DO YOU HAVE A TIME PERIOD WHERE YOU THINK WE GET TO, SAY 7% UNEMPLOYMENT?

EVANS: WELL, I'VE GOT AN OUTLOOK, AND YOU KNOW, THAT OUTLOOK HAS THE UNEMPLOYMENT RATE IN THE RANGE THAT YOU TALK ABOUT BY THE END OF 2014. IN THE 7% VICINITY. I KIND OF CURRENTLY THINK THAT 6.5% UNEMPLOYMENT ISN'T GOING TO BE ACHIEVED UNTIL ABOUT THE MIDDLE OF 2015. BUT IF THINGS PICK UP MORE QUICKLY, YOU KNOW, THAT DATA WILL APPEAR SOONER.

LIESMAN: WE HAVE TO TALK ABOUT THE DIFFERENCE BETWEEN WHEN THE FED STARTS RAISING INTEREST RATES, AND WHEN IT STOPS QUANTITATIVE EASING. JIM BULLARD THE ST. LOUIS FED PRESIDENT SAYS IT'S ABOUT 7%. DO YOU HAVE A POINT IN YOUR MIND WHEN THE UNEMPLOYMENT RATE SHOULD TRIGGER THE END OF QUANTITATIVE EASING?

EVANS: THESE ARE HARD QUESTIONS.

LIESMAN: THAT'S WHY WE ASK THEM.

EVANS: THANK YOU. AND WE HAVE CHOSEN TO TAKE A QUALITATIVE VIEWPOINT ON THIS. I'VE SAID 200,000 ON PAYROLL. THAT'S WHAT I'M LOOKING AT. I'D LOVE TO SEE 7% UNEMPLOYMENT SOONER, RATHER THAN LATER. AND MOVING DOWN TO 7%. 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%. BUT I'M OPEN-MINDED, AND I THINK THAT THESE POLICIES HAVE DONE A LOT OF GOOD, AUTO SALES ARE UP. HOUSING IS TURNING THE CORNER. I THINK OUR POLICIES ARE IMPROVING THINGS.

LIESMAN: HOW MUCH -- RUNNING OUT OF TIME, CHARLIE. HOW MUCH FISCAL RESTRAINT DO YOU EXPECT THIS YEAR?

EVANS: WELL, THAT'S MARKED DOWN OUR FORECAST. I'M LOOKING FOR 2.5% GROWTH THIS YEAR. THAT'S AGAINST 1% DRAG UNDER THE CURRENT LAW FOR FISCAL POLICY, IF WE HAVE MORE OF A DRAG THIS YEAR, THAT'S MORE OF A HEADWIND THAT MIGHT MEAN THAT WE HAVE TO DO A LITTLE BIT MORE. BUT I THINK WE'VE GOT THE APPROPRIATE POLICIES IN PLACE TO RESPOND FLEXIBLY TO WHAT WE'RE FACING.

LIESMAN: OKAY, CHARLIE, YOU'RE GOING TO SIT RIGHT THERE. WE'RE GOING TO GO BACK TO THE "SQUAWK BOX" SHOW. THERE'S A LOT OF NEWS HAPPENING THIS MORNING BETWEEN BOB RUBIN AND SOME OTHER SPECIAL GUESTS THERE. AND CHARLIE IS GOING TO ANSWER SOME MORE QUESTIONS. WE'RE GOING TO BRING YOU THOSE OTHER QUESTIONS, THOSE OTHER ANSWERS IN THE 10:00 HOUR, THEN AGAIN IN THE 1:00 HOUR. AND ALL OF IT, OF COURSE, ONLINE. BACK TO YOU GUYS IN NEW YORK.


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