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CNBC Transcript: CNBC Exclusive: Federal Reserve Bank of Chicago President Charles Evans Speaks with CNBC's "Squawk Box" Today

WHEN: Today, Friday, January 9th

WHERE: CNBC's "Squawk Box"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Charles Evans, Federal Reserve Bank of Chicago President, today on CNBC's "Squawk Box." Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000345307&play=1

All references must be sourced to CNBC.

BECKY QUICK: WELCOME BACK. FOR MORE REACTION TO THE JOBS REPORT, STEVE LEISMAN IS HERE AND HE HAS BROUGHT A SPECIAL GUEST WITH HIM.

STEVE LIESMAN: YEAH. IT'S A GREAT PLEASURE TO HAVE CHICAGO FED PRESIDENT CHARLIE EVANS. AND JUST TO REACT RIGHT TO THAT NUMBER THAT JUST CAME OUT AND SEE IF WE CAN HELP FOLKS PROCESS IT. WHICH IS WHAT THEY ARE DOING ANYWAY, CHARLIE. I KNOW YOU WANT TO TAKE A STEP BACK AND THINK ABOUT IT FOR AWHILE, BUT AT THE END OF THE DAY WHAT THE MARKET IS DOING IS IMMEDIATELY PROCESSING IT INTO FED POLICY AND WHAT THE OUTLOOK IS. LET ME GET YOUR FIRST THOUGHTS ON THE LEVEL OF JOB GROWTH THAT WE'VE SEEN, WHICH IS THAT THEY REVISED UP THAT BIG 321,000 NUMBER AND CAME IN WITH A STRONG 250. BUT ALSO IF YOU WOULDN'T MIND PUTTING THAT IN CONTEXT OF THE WEAK WAGE GROWTH THAT'S OUT THERE.

CHARLES EVANS: WELL, I THINK EMPLOYMENT GROWTH HAS BEEN VERY GOOD FOR QUITE A LONG TIME NOW. AND THAT'S BEEN AN IMPORTANT CRITERIA FOR US TO JUDGE SUCCESS. IF YOU GO BACK TO SEPTEMBER 2012 WHEN WE ANNOUNCED OPEN ENDED QUANTITATIVE EASING, ADDITIONAL PURCHASES, WE SAID WE NEEDED TO SEE SUBSTANTIAL IMPROVEMENT IN THE LABOR MARKET OUTLOOK. WE'VE SEEN THAT AND WE'VE SEEN WELL OVER 200,000 FOR A LONG, LONG TIME. SO GOOD, GOOD PROGRESS UNEMPLOYMENT RATE GOING DOWN. THAT'S GOOD. ECONOMIC ACTIVITY SEEMS TO BE STRONG. AND SO I'M FEELING PRETTY CONFIDENT ABOUT THE OUTLOOK.

LIESMAN: HOW BIG A STORY IS THE DECLINE IN THE UNEMPLOYMENT RATE? AND YOU KNOW THE CRITICISM IS HOW IS IT POSSIBLE THAT YOU'RE STILL AT ZERO WITH A 5.6% UNEMPLOYMENT RATE, 200,000-PLUS JOBS MONTH AFTER MONTH. THIS IS WHAT? THE 11th MONTH IN A ROW WE'VE DONE IT. WE DID A 5% GDP GROWTH RATE. HOW IS IT POSSIBLE THAT ZERO, NOTHING IS THE APPROPRIATE INTEREST RATE?

EVANS: SO WE'VE SEEN GOOD PROGRESS LIKE I MENTIONED EARLIER. AND IT CONTINUES WITH THE UNEMPLOYMENT RATE AND IT'S REALLY COME DOWN QUICKLY. I THINK WHAT WE HAVE TO KEEP IN MIND THOUGH IN TERMS OF THE OVERALL STANCE IN MONETARY POLICY IS THAT WE ALSO HAVE TO BE PAYING ATTENTION TO INFLATION. AND THAT WAGE NUMBER THAT YOU SAW THIS MORNING GOING DOWN IS SOMEWHAT INDICATIVE OF THE LOW INFLATION PRESSURES THAT WE'VE BEEN SEEING. EARNINGS GROWTH, YOU KNOW, ON AVERAGE IT'S BEEN 2 TO 2.25% ACROSS A VARIETY OF MEASURES. AND NOW IT'S LOWER FOR AVERAGE HOURLY EARNINGS THIS MORNING. I THINK IF WE'RE GOING TO GET INFLATION UP TO OUR 2% OBJECTIVE, AND IT'S NOW LIKE 1.5% ON COURT – A LITTLE BIT LESS THAN THAT – WE ARE GOING TO HAVE TO SEE WAGES INCREASE MORE. SO I THINK THAT'S INDICATIVE OF ONE OF THE DILEMMAS WE'RE FACING. AND THAT'S WHY I AM IN FAVOR OF BEING PATIENT ON RAISING INTEREST RATES.

LIESMAN: I WANT TO EXPLORE THAT PATIENCE IN THE SENSE THAT YOU HAD SAID THAT YOU DON'T THINK YOU SHOULD RAISE RATES – THE FED SHOULD RAISE RATES THIS YEAR. DOES THIS MAKE YOU MORE FIRM IN THAT NOTION?

EVANS: WHEN I ANSWER THE QUESTION THAT'S POSED TO US ON WHAT APPROPRIATE MONETARY POLICY IS IN ORDER TO HIT OUR OBJECTIVES, IT COMES OUT FOR ME THAT WE SHOULDN'T BE RAISING RATES BEFORE 2016. IF THINGS TRANSPIRE AS I'M EXPECTING. EMPLOYMENT HAS BEEN GOOD. I'VE BEEN EXPECTING THAT. I'M HOPING THAT INFLATION IS GOING TO PICK UP. AND I THINK WE NEED TO SEE MORE OF THAT. SO, YEAH, I THINK I'D LIKE TO HAVE MORE CONFIDENCE THAT WE'RE GOING TO GET TO 2% BY 2016 WOULD BE GREAT. 2017 SEEMS LIKE THE MINIMAL ALLOWABLE THING. SO I THINK TO GET THERE, I THINK WE NEED MORE CONTINUED ACCOMMODATION.

JOE KERNEN: WE ALWAYS TALK ABOUT, YOU KNOW, NO FREE LUNCHES AND ALL MORNING WE HAVE BEEN TALKING ABOUT ZERP AND WHAT THE RISKS ARE TO BE IN AT ZERP FOR TOO LONG. I'M JUST WONDERING WHEN YOU'RE DISCUSSING, YOU ARE ALL SITTING AROUND, IS THE ONLY RISK THAT YOU EVER DISCUSS IN TERMS OF INFLATION AND NASCENT INFLATION, DO YOU EVER SAY MAYBE THAT'S NOT WHAT IS GOING TO BE THE NEGATIVE OUTCOME FROM BEING AT ZERO TOO LONG? MAYBE IT'S GOING TO BE SOMETHINGWE DON'T REALLY UNDERSTAND. PEOPLE WOULD SAY IN 2004 THE FED WAS AT ZERO FOR TOO LONG AND IT ENDED UP 2008. IS IT POSSIBLE THAT THERE'S MONEY GOING TOO FAR OUT THE RISK SPECTRUM WITH EMERGING MARKETS OR SOMETHING NOT RELATED TO INFLATION THAT COULD COME BACK TO HAUNT YOU ON THIS?

EVANS: WELL WE HAVE THOUGHT VERY CAREFULLY ABOUT –

KERNEN: SO YOU DO TALK ABOUT IT?

EVANS: WE THOUGHT VERY CAREFULLY ABOUT WHAT THE RAMIFICATIONS OF OUR POLICIES ARE FOR THE ECONOMY, FOR INFLATION, FOR FINANCIAL MARKETS. FOR ALL OF THE COMPONENTS. I DISAGREE WITH YOUR CHARACTERIZATION OF 2004 FROM LOW FUNDS RATE TO 2008.

KERNEN: HAS NOTHING TO DO WITH IT?

EVANS: WELL, I DON'T THINK THAT'S CAUSALITY. I MEAN, IT'S A BIG LEAP.

KERNEN: THEY'LL BE TALKING ABOUT THAT FOR THE REST OF TIME, PROBABLY.

EVANS: DECADES, FOR SURE. BUT I DO THINK THAT, YOU KNOW, WE'VE GOT A LOT OF ACCOMMODATION IN PLACE RIGHT NOW. WE SHOULD HAVE GOAL-ORIENTED POLICY. WE'RE GETTING CLOSER ON THE ECONOMY. ALTHOUGH, EVEN AT 5.6%, I'M INCLINED TO THINK THAT SUSTAINABLE UNEMPLOYMENT IS 5.25% AND LESS THAN THAT POTENTIALLY.

KERNEN: GIVEN HOW HAM-HANDED EUROPE HAS BEEN, ARE YOU GUYS WALKING AROUND LIKE THIS JUST, WOW, WE ACTED FAST, WE ACTED HARD, WE ACTED AGGRESSIVELY. LOOK AT THESE AMATEURS OVER THERE. THEY DON'T KNOW HOW TO DO EXTRAORDINARY THINGS.

EVANS: WHEN I LOOK AT EUROPE, THAT'S NOT WHAT I SEE –

KERNEN: BUT YOU ARE FEELING PRETTY GOOD AREN'T YOU?

EVANS: I SAY I DON'T WANT TO GET TO A SITUATION LIKE EUROPE IS IN AND I WANT TO MAKE SURE THAT WE GET INFLATION UP TO OUR OBJECTIVE. IF IT MOVES DOWN, THAT'S A CHALLENGE.

QUICK: CAN I ASK YOU VERY QUICKLY, THOUGH, HOW MUCH ATTENTION TO YOU PAY TO GLOBAL EVENTS AND GLOBAL MARKETS? WHEN YOU SAID – OR IS IT ENTIRELY A U.S.-BASED SCENARIO? BECAUSE IT FEELS LIKE THERE ARE SO MANY THINGS OUTSIDE OUR BORDERS THAT ARE INFLUENCING THINGS.

EVANS: WE PAY ATTENTION TO ANYTHING AND EVERYTHING THAT CAN AFFECT THE U.S. ECONOMY AND US ACHIEVING OUR MANDATES AND GLOBAL EFFECTS ARE VERY IMPORTANT. SO MAKING SURE THAT THE SLOW GLOBAL ECONOMY ISN'T GOING TO SLOW THE U.S. ECONOMY DOWN IS IMPORTANT. THE EFFECT ON COST AND THINGS LIKE THAT. WE PAY ATTENTION TO IT BUT –

QUICK: CURRENCY MARKETS TOO? LIKE THE STRONG DOLLAR?

EVANS: WE LOOK AT WHAT RELEVANT COSTS ARE FOR MANUFACTURERS AND CONSUMERS AND EVERYTHING. AND SO IMPORTED PRICES ARE GOING TO BE PART OF THAT. BUT WE ARE ALWAYS LOOKING AT WHAT THE IMPLICATIONS ARE FOR THE U.S. WE'RE COGNIZANT OF THE IMPLICATION THAT HAS ON THE REST OF THE WORLD AND WE PAY ATTENTION TO IT AS MUCH JUST BECAUSE THAT HAS A REBOUNDING EFFECT ON THE U.S. TOO. WE HAVE TO UNDERSTAND THAT.

LIESMAN: WHAT ABOUT THE SIGNAL, CHARLIE? WHEN YOU LOOK AT LOW INTEREST RATES, WHEN YOU LOOK AT LOW INFLATION. DO YOU FEEL LIKE THAT'S A SIGNAL THAT THE MARKET IS FEELING THAT THE ECONOMIC GROWTH IS NOT WHAT IT APPEARS TO BE?

EVANS: SO I'M DEFINITELY VERY CONCERNED ABOUT THE TIPS DATA. IT'S MOVED DOWN A LOT IN TERMS OF FUTURE INFLATION AND BREAK EVENS. THE FIVE YEAR, FIVE YEAR FORWARD. IT'S REALLY VERY LOW. AND THAT'S EITHER AN ASSESSMENT BY INVESTORS THAT THEY'RE EXPECTING CONTINUED VERY LOW BELOW OUR OBJECTIVE INFLATION FOR ANOTHER FIVE YEARS BEYOND THE NEXT FIVE YEARS. OR THAT THE COST OF LOW INFLATION IS POTENTIALLY MUCH HIGHER THAN THEY'VE EVER EXPERIENCED BEFORE. AND THE COST OF HIGH INFLATION IS NOT. AND SO THEY DON'T NEED TO BE COMPENSATED FOR THAT. AND SO THAT REALLY WORRIES ME BECAUSE IF WE ENDED UP IN A LOW INFLATION ENVIRONMENT AND IT WAS VERY COSTLY, THAT MIGHT BE ASSOCIATED WITH A GLOBAL ENVIRONMENT WHERE THEY'VE GOT SIMILAR EVENTS AND THAT WOULD BE MUCH MORE TROUBLING. I JUST DON'T SEE WHY WE SHOULD BE IN A HURRY TO MOVE OFF OUR CURRENT ACCOMMODATIVE POLICY. WE OUGHT TO BE CONFIDENT THAT WE ARE GOING TO GET INFLATION UP TO OUR 2% LEVEL. WE OUGHT TO SEE WAGES GROWING IN THE 3% TO 4% RANGE. NOT WHERE THEY ARE RIGHT NOW BECAUSE THAT WOULD BE ASSOCIATED WITH STRUCTURAL PRODUCTIVITY GROWTH AND AVERAGE INFLATION THAT WE ARE HOPING TO GET. THAT WOULD BE – I'D HAVE A LOT MORE CONFIDENCE IN THAT WE ARE ON THE RIGHT TRACK IF WE HAD THAT.

QUICK: PRESIDENT EVANS, WE WANT TO THANK YOU SO MUCH FOR BEING WITH US TODAY. IT REALLY IS A PLEASURE.

EVANS: THANK YOU.

QUICK: STEVE, THANK YOU FOR BRINGING HIM.

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