CNBC Exclusive: CNBC Transcript: Federal Reserve Bank of Chicago President Charles Evans Speaks with CNBC’s Steve Liesman on “Squawk Box” Today
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Chicago Fed President Charles Evans on CNBC's "Squawk Box" (M-F, 6am-9am ET) today, Wednesday, March 30th. Following are links to the video on CNBC.com: http://video.cnbc.com/gallery/?video=3000505582, http://video.cnbc.com/gallery/?video=3000505584, http://video.cnbc.com/gallery/?video=3000505585 and http://video.cnbc.com/gallery/?video=3000505580.
All references must be sourced to CNBC.
STEVE LIESMAN: VERY PLEASED TO INTRODUCE JOINING US ON SET CHICAGO FED PRESIDENT CHARLES EVANS. THANKS FOR JOINING US.
CHARLES EVANS: GOOD MORNING, STEVE.
LIESMAN: LET'S TALK ABOUT THE CHAIR'S SPEECH YESTERDAY AND OVERALL FED POLICY. DO YOU STILL CONSIDER THE FEDERAL RESERVE TO BE IN A TIGHTENING MODE? IS THIS A NORMALIZATION PERIOD RIGHT NOW?
EVANS: I THINK CHAIR JANET YELLEN LAID OUT ALL THE RIGHT ISSUES. COMING OUT OF DECEMBER GOING INTO THE MARCH FOMC IT SEEMED LIKE SOME OF THE RISK FACTORS HAD INCREASED A BIT, THERE WAS MORE FINANCIAL VOLATILITY THINGS HAD SETTLED DOWN A LITTLE BIT BUT I THINK GLOBAL RISK IS HIGHER AND I THINK IN THAT ENVIRONMENT THE -- YOU KNOW, THE FUNDS RATE DOT CHART, THE EXPECTATION IN DECEMBER I THINK EXPECTED FOUR RATE HIKES IN 2016, NOW IT'S DOWN TO TWO, THAT'S THE MEDIAN. AND I THINK THAT TAKES ON BOARD THE GLOBAL RISKS AND, YOU KNOW, THE FACT THAT ACCOMMODATIVE POLICY CONTINUES TO BE APPROPRIATE BUT IT DOES HAVE AN UPWARD SLOPE TO IT. MEDIAN IS FOR TWO HIKES THIS IS YEAR IF THE DATA COME IN THE WAY WE'RE EXPECTING. IF THEY COME IN STRONGER I THINK EVERYBODY WOULD ADJUST UPWARDS.
LIESMAN: BUT THE MARKETS RIGHT NOW JUST PRICING IN ONE, AND IT'S CONSISTENTLY BEEN BELOW. THE GUIDANCE SEEMS TO BE, YOU KNOW, YOU START A NORMALIZATION PROCESS WHICH MAKES PEOPLE THINK THAT YOU'RE HEADING UP TOWARDS SOMETHING THAT'S HIGHER THAN ZERO AND PERHAPS HIGHER THAN THE 37 BASE POINTS WHERE YOU ARE NOW BUT RIGHT NOW IT SEEMS LIKE ALL BETS ARE OFF THAT YOU COULD BE IN THIS PERMANENT NEUTRAL HERE.
EVANS: WELL, SO LOOK, THE DOT CHARTS GIVE THE CURRENT BEST ASSESSMENT OF WHAT WE THINK THE ECONOMY IS DOING AND THE APPROPRIATE MONETARY POLICY. YOU'RE RIGHT. WE'VE USED THE TERM "NORMALIZATION, RENORMALIZATION" TO KICK THINGS OFF AND EVENTUALLY WE CERTAINLY WANT TO GET THE FUNDS RATE UP TO A NORMAL LEVEL, THAT 3% 3.5% RATE, BUT LOOK I HAVE GOT TO TELL YOU I THOUGHT THE CHAIR WAS TERRIFIC YESTERDAY WHEN SHE SAID, YOU KNOW, THE DOTS AREN'T SET IN STONE. THERE'S A LOT OF CONDITIONALITY THAT WILL DEPEND ON HOW THINGS PLAY OUT. WE DID USE THIS TERM NORMALIZATION, I THINK THAT'S STILL CORRECT BUT THAT DOESN'T MEAN WE'RE GOING TO GET THERE TOMORROW.
LIESMAN: LET ME JUST DO AN INFORMATIONAL INTERJECTION HERE –
EVANS: IT'S GOING TO DEPEND ON THE DATA.
LIESMAN: JUST SO EVERYBODY UNDERSTANDS THIS THE DOTS ARE THE MEMBERS OF THE FOMC, THEIR FORECAST FOR WHERE RATES WILL BE. AND IF YOU LOOK AT THE CHART, IT'S A BIT LIKE, I DON'T KNOW, A BAD 1970s VIDEO GAME, RIGHT? I GOT A BOAT ON THE RIGHT, AN ALIEN JUST TO THE LEFT OF THAT AND A NICE SAILBOAT AND THEN MAYBE AN AIRCRAFT CARRIER OR SOMETHING ON THE LEFT.
EVANS: SO THIS DIAGRAM PROVIDES A TREMENDOUS AMOUNT OF INFORMATION. IF YOU'VE EVER WONDERED WHAT AN FOMC MEETING IS LIKE WHEN WE GO INTO THE BIG ROOM AND WE HAVE ROBUST DISCUSSIONS AND THEN AFTERWARDS YOU HEAR THE COMMENTARY AND YOU HEAR DIFFERENT VIEWS EXPRESSED. THESE ASSESSMENTS OF APPROPRIATE MONETARY POLICY PUT ON FULL DISPLAY OUR AGREEMENTS AND DISAGREEMENTS AND WHAT'S VERY INTERESTING ABOUT 2016 IS IT SHOWED MOVEMENTS TOWARDS MORE AGREEMENT. THAT DISCREPANCY ISN'T VERY LARGE. AS YOU GO OUT, YES, THERE'S MORE OF A SPREAD AND THEN IT DEPENDS ON WHERE YOU THINK THINGS ARE GOING.
ANDREW ROSS SORKIN: IT LOOKS LIKE BRICK BREAKER.
BECKY QUICK: IT LOOKS LIKE LIGHT BRIGHT.
LIESMAN: YOU TALKED ABOUT AGREEMENTS AND DISAGREEMENTS IS THERE A SPLIT ON THE FEDERAL RESERVE? A BUNCH OF FOLKS STEPPED OUT LAST WEEK AND SAID THAT APRIL WAS THE TIME THE FEDS SHOULD CONSIDER IT BUT I DON'T HEAR THAT FROM FED CHAIR JANET YELLEN AT ALL THAT APRIL IS EVEN ON THE TABLE.
EVANS: WELL, IN FAIRNESS I THINK SHE DID SAY DURING THE PRESS CONFERENCE WELL, OF COURSE WE GO INTO THESE MEETINGS, APRIL IS LIVE, THEY'RE ALL LIVE MEETINGS, WE GO IN TO TALK ABOUT THINGS. I WOULD SAY THE THRESHOLD FOR HAVING CONFIDENCE THAT INFLATION IS GOING TO SUSTAINABLY MOVE UP TOWARDS OUR 2% INFLATION TARGET IS HIGH. THAT HURDLE IS PRETTY HIGH. SO I'D BE SURPRISED IF WE MET THAT CONDITION MYSELF IN APRIL. I THINK MOVING IN JUNE WOULD BE ON THE BASIS OF FURTHER IMPROVEMENTS IN THE LABOR MARKET LIKE WHAT WE'VE HAD. MAYBE THE UNEMPLOYMENT RATE MOVES DOWN A BIT, MAYBE MORE PEOPLE COME INTO THE LABOR FORCE AND THAT GETS IN THE WAY OF THE RATE MOVING DOWN AS QUICKLY RATE MOVING DOWN AS QUICKLY BUT THAT WOULD BE A GOOD SIGN, PEOPLE COMING BACK FOR GOOD WAGES AND THINGS LIKE THAT. FURTHER MOVEMENT LIKE THAT WOULD BE A GOOD REASON TO FURTHER ADJUST GRADUALLY THIS RATE. I JUST DON'T THINK WE WANT TO GET AHEAD OF OURSELVES. WE WANT TO MAKE SURE WE HAVE CONFIDENCE WE'LL HIT OUR 2% OBJECTIVE. IF YOU LOOK AROUND THE WORLD AND SEE ALL THE DIFFERENT COUNTRIES STRUGGLING TO GET AWAY FROM VERY LOW INFLATION RATES WITH ECONOMIES NOT NEARLY AS STRONG AS OURS, YOU WANT TO MAKE SURE WE AVOID THOSE CIRCUMSTANCES. IT'S WORTH A LITTLE EXTRA CAUTION.
ED LAZEAR: I WONTER IF YOU CAN CLARIFY WHAT WE MEAN BY THE GLOBAL RISKS. IF YOU DO KIND OF THE STANDARD NATIONAL INCOME ACCOUNTING EXERCISE AND SAY HOW BIG AN EFFECT OF A RECESSION IN EUROPE OR A DECLINE IN GROWTH RATES IN CHINA BE ON THE UNITED STATES, THESE NUMBERS ARE REALLY SMALL. YOU'RE TALKING ABOUT AT MOST A HALF PERCENTAGE POINT OF GDP. IF IT'S CHINA FOR TEN YEARS YOU'RE TALKING ABOUT ONE PERCENTAGE POINT. SO I'M WONDERING, WHERE DOES THIS STUFF COME FROM? BY THE WAY, EUROPE ACTUALLY IS DOING BETTER. IF YOU LOOK AT THE G-7, WITH THE EXCEPTION OF CANADA, THEY'RE ACTUALLY MOVING BACK UP. SO I UNDERSTAND --
EVANS: IT'S A GREAT QUESTION. I SHARE YOUR CONCERNS, YOUR EXPERTISE AT THE CHAIR COUNCIL OF ECONOMIC ADVISORS, I KNOW YOU UNDERSTAND THIS STUFF BETTER THAN I DO. I AM NERVOUS ABOUT -- YOU LOOK AT TRADE NUMBERS, YOU LOOK AT EXPOSURE AND EVERY SINGLE COUNTRY IS A MINIMAL EXPOSURE. I THINK WHEN YOU PUT IT TOGETHER, THE HARD TO TRULY ASSESS IS THEN RISK AVERSION GOES UP AND PEOPLE START WITHDRAWING AND THE BANKS START THINKING MAYBE THEIR CAPITAL IS MORE EXPOSED THAN THEY THOUGHT AND IT'S THAT KIND OF ADD-ON EFFECT CHINA, I'M NOT SERIOUSLY CONCERNED ABOUT A HARD LANDING IN CHINA. I JUST LOOK AT THE FACT THAT THEY ARE IN A LONG PROCESS OF MOVING FROM DOUBLE DIGIT GROWTH DOWN TO WHAT WE THOUGHT WAS HIGH SINGLE DIGIT GROWTH. NOW WE'RE LOOKING AT 6.5%. THAT TRANSITION PLUS MOVING FROM INVESTMENT TO CONSUMER LED, IT'S UNLIKELY NOT TO BE -- IT'S GOING TO BE BUMPY, YOU WOULD EXPECT. YOU DON'T HAVE TO HAVE A HARD LANDING TO CAUSE MORE UNCERTAINTY IN EMERGING MARKET ECONOMIES OR PREMISED ON COMMODITY EXPORTS. EUROPE IS DOING BETTER. THEY ARE STILL PRETTY LOW THEY CAN COME BACK A LONG WAYS. THAT'S A LOT OF RISK IN MY BOOK.
SORKIN: RICHARD FISCHER WAS HERE IN THE LAST HOUR AND HE MADE THE POINT ABOUT THE UPCOMING ELECTION AND I SAID "IS THE WORD ELECTION EVER USED IN THE ROOM?" HE SAID NO BUT I THOUGHT I'D ASK THE SAME QUESTION TO YOU.
EVANS: YOU KNOW, WE'VE GOT A JOB TO LOOK AT THE STATE OF THE ECONOMY AND INFLATION AND WE'RE LOOKING AT THE NUMBERS AND TRYING TO FIGURE OUT WHERE WE ARE HEADED, AND THE FUNDAMENTALS FOR THE U.S. ARE REALLY QUITE GOOD. THE LABOR MARKET IMPROVEMENTS HAVE BEEN QUITE STRONG AND THEY'VE HELPED SUPPORT, IN MY MIND, A STRONGER CONSUMER THAN I WOULD HAVE EXPECTED. WITHOUT STRONGER WAGE GROWTH, I MIGHT HAVE EXPECTED THE CONSUMER TO BE MORE CHALLENGED. SO IT'S BEEN VERY GOOD TO SEE THAT. OBVIOUSLY ANYTHING THAT COULD LEAD TO MORE UNCERTAINTY AND ELECTIONS BY THEIR VERY NATURE, YOU DON'T KNOW WHERE THE OUTCOME IS GOING TO COME OUT. SO THERE'S UNCERTAINTY.
JOE KERNEN: HE SAID YOU WERE LOADED WITH DEMOCRATS, TOO.
EVANS: I'M SORRY.
KERNEN: I THINK HE ALSO SAID YOU WERE LOADED WITH DEMOCRATS. HE MENTIONED LAEL BRAINARD GAVE SOME MONEY TO SOMEONE. TARULLO STILL HAS A BARACK OBAMA BUMPER STICKER ON HIS –
EVANS: I'VE BEEN AMAZED AND VERY PLEASED AT MY LONG TIME ATTENDING FOMC MEETINGS, MY FIRST MEETING WAS IN 1995. AND IN THAT TIME, I'VE SEEN DEMOCRATS APPOINTED AS GOVERNORS, I'VE SEEN REPUBLICANS APPOINTED AS GOVERNORS AND I THINK PEOPLE COME INTO THE ROOM, THEY LOOK AT THE ECONOMY, THEY'RE LOOKING TO SET POLICY APPROPRIATELY FOR EVERYBODY. I'M NOT AWARE OF THOSE.
KERNEN: BUT IF YOU'RE LOOKING AT IT AS A KEYNESIAN INSTEAD OF AS A MILTON FRIEDMAN ACOLYTE, YOU'D CERTAINLY DO DIFFERENT THINGS WITH MONETARY POLICY.
EVANS: I DON'T THINK KEYNESIAN MONETARISM HAS TO BE DEMOCRAT OR REPUBLICAN.
KERNEN: WELL, I DON'T KNOW.
QUICK: THERE HAS BEEN THE PERCEPTION IN THE PAST WHEN THE GREENSPAN FED RAISED RATES DURING HIS ELECTION CYCLE –
KERNEN: BUT HE WAS A REPUBLICAN.
QUICK: THEY TOOK A LOT OF FLAK FOR BEING ACCUSED OF TAMPERING WITH THE ELECTION. WITH THAT SITTING IN THE BACK OF YOUR MIND, DO YOU THINK THE FED WOULD EVER NOT ACT AS A WAY TO MAKE SURE THAT THEY'RE STAYING OUT OF THE FRAY WITH IT?
EVANS: YOU KNOW, I THINK WE'VE HAD PERIODS WHERE – I MEAN, IN 2004 WE WERE RAISING RATES INTO THE ELECTION. SO I THINK IT DEPENDS ON THE CIRCUMSTANCES, THE ECONOMY THAT WE'RE FACING. YOU KNOW LOOK, WE KNOW THAT OUR JOB IS CHALLENGING. WE'RE CONSTANTLY SAYING THAT WE NEED TO BE GRANTED SOME MEASURE OF INDEPENDENCE FROM SHORT TERM POLITICAL CONCERNS BECAUSE WE HAVE TO MAKE THESE HARDER DECISIONS. THAT'S WHAT THE JOB IS AND SO WE JUST HAVE TO DO THAT AND IF THE CRITICISM COMES OUR WAY, WE HAVE TO TAKE IT.
LIESMAN: CHARLIE, GIVE US YOUR BEST OUTLOOK FOR WHAT HAPPENS TO RATES THIS YEAR AND THE ECONOMY.
EVANS: WELL, I THINK THE ECONOMY IS DOING PRETTY WELL. I THINK, I'M LOOKING FOR 2% TO 2.5% GROWTH THIS YEAR. THAT'S ACTUALLY ABOVE TREND. I DON'T REALLY THINK THAT PEOPLE HAVE TAKEN FULLY ON BOARD THE FACT THAT TREND GROWTH RATES ARE LOWER NOW. WE USED TO EXPECT SOMETHING IN THE HIGH 2s, AND NOW 2% I THINK IS A LOT OF PEOPLE'S VIEW POINT. SO 2% 2,.5% IS ABOVE TREND. WE CAN DRIVE UNEMPLOYMENT A LITTLE BIT LOWER. THE LABOR MARKET IS IMPROVING AND THOSE ARE GOOD CONDITIONS FOR THE CONSUMER TO CONTINUE TO THRIVE. A LITTLE NERVOUS ABOUT BUSINESS-FIXED INVESTMENT, THE DECLINE IN ENERGY AND THE FACT THAT WE PRODUCE ENERGY MORE NOW IS A DIFFERENT TYPE OF EXPOSURE THAN WE HAD FACED 10, 15 YEARS AGO. ON THAT BASIS, I THINK THAT THERE'S REASON TO BELIEVE THAT INFLATION WILL BE MOVING UP TO OUR 2% OBJECTIVE. I'M A LITTLE NERVOUS THAT WE MIGHT GET UP TO ABOUT 1.8% AND THEN THERE'S AN ATTRACTOR IN TERMS OF LOWER LONG-TERM INFLATION EXPECTATIONS WHICH APPEAR TO BE A LITTLE BIT BELOW 2 AND BEYOND THAT MIGHT BE A CHALLENGE. I'D LIKE TO HAVE CONFIDENCE THAT WE GET UP TO 2. SO I THINK THAT – YOU KNOW, MY ASSESSMENT IS THE ECONOMY IS GOING TO BE STRONG ENOUGH, WE'LL BE RAISING RATES TWO TIMES THIS YEAR. IT COULD BE – WELL BE MORE IF WE DO BETTER.
LIESMAN: SO YOU'RE THINKING A 75 BASIS POINT 1% FED FUNDS RATE WITH A 2, 2.5% ECONOMY AND YOU DON'T FEEL LIKE YOU'RE BEHIND THE CURVE IN THAT ENVIRONMENT?
EVANS: NO. I DON'T THINK INFLATION IS GOING TO GET OUT OF HAND. REMEMBER, WE'VE BEEN UNDER 2 FOR A LONG TIME, WE'RE SUPPOSED TO BE AT 2. IT'S A SYMMETRIC OBJECTIVE. HALF THE TIME WE OUGHT TO BE ABOVE 2%. I DON'T THINK WE SHOULD BE CONCERNED ABOUT GOING THROUGH 2 ON THE WAY TO MAKING SURE WE GET TO 2 WITH HIGH CONFIDENCE. OF COURSE WE WOULDN'T WANT IT TO GET OUT OF HAND. I DON'T THINK WE'RE LOOKING AT ANYTHING LIKE THAT IN THE U.S. SO I THINK THAT WE HAVE THE ABILITY TO BE CAUTIOUS.
LIESMAN: I FEEL BETTER. YOU FEEL BETTER?
KERNEN: I DON'T KNOW. I'M STILL THINKING ABOUT –
LIESMAN: I WANT YOU TO FEEL BETTER.
KERNEN: SOMETHING ABOUT ZANDI. IF YOU BELIEVE ZANDI. HE WAS SAYING EVERYTHING UNDERSTATES THE ACTUAL STRENGTH OF THE ECONOMY. THE GDP NUMBER DOESN'T TAKE INTO ACCOUNT TECHNOLOGICAL ADVANCES. HE THINKS WE ARE TOTALLY OVERHEATED.
EVANS: I HOPE HE'S RIGHT. I HOPE WE GET THAT STRONG GROWTH. I HOPE IT'S EXHIBITED IN STRONGER LABOR IMPROVEMENT.
LAZEAR: BUT IT IS NOT SHOWING IN WAGES. IF HE WERE RIGHT, YOU'D BE SEEING WAGE GROWTH LIKE CRAZY.
EVANS: I THINK THAT'S AN ISSUE. I AGREE WITH YOU.
KERNEN: YOU WERE NICE. YOU DIDN'T DISAGREE WITH HIM AS VOCIFEROUSLY AS – YOU'RE A NICE MAN. BUT I THOUGHT YOU WERE REALLY GOING TO LAY INTO HIM. BUT IS THERE ANYTHING TO THE NOTION THAT IT'S MORE GLOBAL THAN IT USED TO BE AND YOU CAN'T RAISE RATES WHEN YOU'VE GOT NEGATIVE RATES ACROSS A LOT OF PARTS OF THE WORLD. THAT HAS GOT TO COME INTO THINKING.
EVANS: I LOOK AT IT THIS WAY. WE'RE CONTEMPLATING POLICY DIRECTIONS WHICH THE REST OF THE WORLD IS GOING IN THE OTHER –
KERNEN: EXACTLY.
EVANS: THEY'RE HOLDING AT A LOWER LEVEL. AND THAT MEANS, YOU KNOW, IF YOU SAY, OH, I THINK YOU MIGHT BE BEHIND THE CURVE ON INFLATION, YOU'RE GOING TO HAVE TO RAISE RATES HIGHER. GIVEN THE DIVERGENCE OF MONETARY POLICIES AND THE LIKELY AFFECTS ON EXCHANGE RATES, THOSE MOVES ARE GOING TO BE MORE POWERFUL, NOT LESS POWERFUL. AND THAT'S GOING TO HAVE AN AFFECT. I DON'T THINK WE WOULD HAVE TO RAISE RATES AS MUCH.
KERNEN: STRENGTHEN THE DOLLAR AND KEEP INFLATION LOW.
EVANS: WE HAVE A LOT OF AMMUNITION ON THAT SIDE OF IT.
KERNEN: OKAY.
SORKIN: THANK YOU, SIR.
LIESMAN: THANKS FOR COMING IN, CHARLIE.
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