The Federal Reserve should return to role as a 'supporting actor' in the economy, Fed's Evans says

  • Chicago Fed President Charles Evans says the economy is "running on all cylinders" and doesn't need the high level of monetary policy help it once did.
  • "Unconventional tools" are no longer needed but likely will be in future crises, he says.
  • Evans' comments on the economy were much like those from Fed Chairman Jerome Powell on Tuesday.

Robust economic growth has allowed the Federal Reserve to return to its role as a "supporting actor" for economic growth, the head of the central bank's Chicago district said Wednesday.

Like Fed Chairman Jerome Powell a day before, Charles Evans gave high marks to where the recovery stands now and said it's time for the Fed to step back from the aggressive stance it took during the financial crisis and the years after. The Fed kept its benchmark interest rate near zero for seven years and instituted multiple rounds of bond purchases that took its balance sheet above $4.5 trillion.

"Given the strong near-term growth fundamentals and positive inflation outlook, it is time for the Fed to return to something akin to the conventional monetary policymaking of yesteryear," Evans said during a speech in London.

"Such policy will rely on gradual adjustments in interest rates to meet our mandated objectives of maximum employment and 2 percent inflation, rather than the unconventional tools we had to use in response to the financial crisis and ensuing Great Recession," he said.

Charles Evans, president and CEO of the Federal Reserve Bank of Chicago.
David Orrell | CNBC
Charles Evans, president and CEO of the Federal Reserve Bank of Chicago.

The Federal Open Market Committee, of which Evans is a nonvoting member this year, has been hiking rates gradually since December 2015 and reducing the size of its balance sheet by allowing proceeds from the bond holdings to run off each month.

At last week's meeting, the FOMC voted to hike rates another quarter point and to remove the word "accommodative" to describe its policy stance.

"We are now happily returning to our supporting actor role," Evans said.

"The U.S. economy is firing on all cylinders: Growth is strong, unemployment is low, and inflation is approaching our 2 percent symmetric target on a sustained basis," he said in describing current conditions. "Like my colleagues on the FOMC, I expect this good performance to continue over the next few years."

Evans said future crises likely would require responses that looked a lot like the last time: policy rates taken to zero and aggressive asset purchases such as occurred with quantitative easing. He also said the Fed should examine whether allowing inflation to run considerably above its 2 percent goal would be an option.

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