The Federal Reserve will keep interest rates low until a stronger recover is underway, but the Fed is still bracing itself to pull easy money from the market, said Charles Evans, the Chicago Federal Reserve President.
"I still think that it's going to be an extended period of time that interest rates are going to be low, but you know we have to prepare and make sure that we are as close to being ready when the time comes," said Evans.
The increase in the discount rate was a part of the Fed's preparation, Evans said. But, interest rates should remain low for about six months based on current economic data, he said.
Despite recent economic reports that have indicated weaker-than-expected growth in the economy — including February's consumer sentiment number which fell to 73.6 from 74.4 in January — Evans said he sees no fundamental changes in the Fed's forecast for increased rates.
"I think we need to see a little bit more of this taking hold before we have any fundamental changes, but I still think the recovery is on track, but it's going to be slow," said Evans.
When will the Fed know the recovery is really catching on? When jobs start coming back, Evans said.
"The labor market data is, you know, is a little bit of a concern, we're looking for the labor market to improve as an indicator that the recovery is really taking hold, and we know that it is going to take some time, so not making progress on that as quickly as possible is a concern," said Evans.
Although the Fed is looking to jobs as a sign as to when the recovery catching on, there still remains a reigning in of accommodation that will have to occur before rates can increase, Evans said.
"It's a very difficult time, we have a lot of things going on right now with our non-traditional policies so to even begin to think about how we get close to taking the actions to tightening, there's a lot of things that we need to do," said Evans.