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CNBC EXCLUSIVE: CNBC INTERVIEW: CNBC'S STEVE LIESMAN SITS DOWN CHICAGO FEDERAL RESERVE PRESIDENT, CHARLES EVANS, TODAY ON "THE CALL"

WHEN: TODAY, FRIDAY, FEBRUARY 26TH AT 11:45 AM ET

WHERE: CNBC'S "THE CALL"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Charles Evans, Chicago Federal Reserve President, today on CNBC's "The Call."

All references must be sourced to CNBC.

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STEVE LIESMAN: WE ARE HERE IN MANHATTAN AT THE CHICAGO BOOTH SCHOOL OF BUSINESS ANNUAL MONETARY CONFERENCE AND I AM PLEASED TO BE JOINED BY CHARLIE EVANS, PRESIDENT OF THE CHICAGO FEDERAL RESERVE. THANKS FOR JOINING US.

CHARLES EVANS: GOOD TO BE HERE.

LIESMAN: LET'S START OFF WITH DATA, THE CONSUMER SENTIMENT DATA SEEMS TO HAVE TAKEN A STEP BACK AS IT DID LAST WEEK AS WELL. THE JOBLESS CLAIMS DATA HAS HAD A REALLY BIG SPIKE EARLIER THIS WEEK. WHAT'S YOUR TAKE ON THIS STATUS OF THE RECOVERY?

EVANS: I THINK THINGS ARE A LITTLE UNEVEN AT THE MOMENT. I THINK WE'VE DEFINITELY GOT GROWTH BEGINNING AND THERE'S --CENT RECOVERY THAT'S TAKING PLACE AND IT'S A LITTLE UNEVEN RIGHT NOW WITH CONSUMER SENTIMENT AND THERE'S PROBABLY A LOT GOING ON AND THOSE NUMBERS ARE SOMETIMES BOUNCED AROUND BY OTHER TYPES OF ACTIVITIES. THE LABOR MARKET DATA IS, YOU KNOW 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 WILL TAKE SOME TIME. SO NOT MAKING PROGRESS ON THAT AS QUICKLY AS POSSIBLE IS A CONCERN.

LIESMAN: I KNOW YOU DON'T LIKE TO PANIC FROM A SINGLE DATA POINT, BUT HAS ANYTHING HAPPENED IN THE LAST COUPLE OF WEEKS AT ALL THAT'S MADE YOU QUESTION THE STRENGTH OF THE RECOVERY THAT YOU HAVE BUILT IN FOR THE NEXT COUPLE OF QUARTERS?

EVANS: NOT FUNDAMENTALLY, NOT FUNDAMENTALLY DIFFERENT. WITH ALL OF THE WEATHER THAT'S TAKEN PLACE THE WINTER IS ALWAYS A DIFFICULT TIME TO SORT OF SORT THROUGH DATA. YOU KNOW, I THINK WE NEED TO SEE A LITTLE MORE OF THIS TAKING HOLD BEFORE YOU HAVE ANY FUNDAMENTAL CHANGES, BUT I STILL THINK THE RECOVERY IS ON TRACK, BUT IT'S GOING TO BE SLOW.

LIESMAN: ONE OF THE CRITICISMS OF THE STRONG GDP NUMBER WE GOT IN THE FOURTH QUARTER IS THAT IT WAS ALL INVENTORIES AND IT WAS A LOT OF GOVERNMENT STIMULUS IN THERE, AND THE IDEA THAT THE INVENTORY EFFECTS WANES IN THE SECOND HALF OF THIS YEAR AS WELL AS THE GOVERNMENT EFFECT. WHAT SUSTAINS A RECOVERY, IN YOUR MIND?

EVANS: I THINK BUSINESSES HAVE TO STEP UP AND SEE THAT, YOU KNOW, THEY HAVE THE IDEA THAT DEMAND IS GOING TO BEGIN TO IMPROVE AND THEY ACTUALLY SORT OF TAKE ACTIONS. AT THE MOMENT I THINK THEY'RE WONDERING AND WAITING TO MAKE SURE THAT THINGS ARE PROCEEDING. SO I THINK IT'S A TIME OF STILL TOO MUCH UNCERTAINTY AND CONSUMERS ARE OBVIOUSLY BEING VERY CAREFUL WITH THE LABOR MARKET SITUATION AND, YOU KNOW, THE DEBT LEVELS THAT THEY'RE CARRYING AROUND.

LIESMAN: ONE OF THE BIG STEPS THE FED JUST TOOK WAS TO RAISE THE DISCOUNT RATE. WHY SHOULDN'T INVESTORS SEE THAT AS THE BEGINNING OF A TIGHTENING CYCLE BY THE FEDERAL RESERVE?

EVANS: WELL, IT'S A VERY DIFFICULT TIME. WE HAVE A LOT OF THINGS GOING RIGHT NOW, OBVIOUSLY, WITH OUR NON-TRADITIONAL POLICIES. SO TO EVEN BEGIN TO THINK ABOUT HOW WE GET CLOSE TO TAKING THE ACTIONS THAT, YOU KNOW, LEAD TO TIGHTENING, THERE'S A LOT OF THINGS THAT WE HAVE TO DO. I STILL THINK THAT IT'S GOING TO BE AN EXTENDED PERIOD OF TIME, THAT INTEREST RATES ARE GOING TO BE LOW, BUT WE HAVE TO PREPARE AND MAKE SURE THAT WE ARE, YOU KNOW, AS CLOSE TO BEING READY WHEN THE TIME COMES. SO THAT'S WHAT THAT ACTION WAS. IT'S ONE OF MANY THINGS THAT WE'VE BEEN DOING.

LIESMAN: ANOTHER BIG THING YOU'RE GOING DO IS STOP BUYING MORTGAGES AT THE END OF THIS QUARTER. HOW DO YOU THINK THAT WILL AFFECT MORTGAGE RATES AND THE HOUSING MARKET, WHICH IS EVEN IN THE FOURTH QUARTER NUMBERS WASN'T DOING QUITE SO WELL.

EVANS: WE ANNOUNCED THAT WE WERE GOING TO PURCHASE 1.25 TRILLION OF NBC AND WE ARE FOLLOWING THROUGH ON THAT NOW WE'RE COMING TO THE END OF THAT. WHEN WE STOP BUYING THEM THERE'S A LOT OF LIQUIDITY THEY WE WILL HAVE PUT IN PLACE WHICH ARE SUPPORTING LOWER MORTGAGE RATES THAN OTHERWISE WOULD HAVE TAKEN OTHERWISE WOULD HAVE PLACE. AS LONG AS THAT LIQUIDITY IS STILL IN PLACE, THAT WILL HAVE A BENEFICIAL EFFECT. SO I THINK THAT WE HAVE DONE A LOT TO HELP OUT THERE. WE CERTAINLY WOULD, YOU KNOW, LIKE TO SEE THE HOUSING MARKET TAKE OFF. IT'S QUITE A WAYS FROM THAT.

LIESMAN: THERE'S A STOCK VERSUS FLO-- GIVEN THE AMOUNT OF MORTGAGES YOU BOUGHT OR IS IT THE BUYING THEM EVERY WEEK. YOU OBVIOUSLY THINK IT'S THE AMOUNT OF MORTGAGES YOU BOUGHT AND THAT LIQUIDITY REMAINS IN THE SYSTEM.

EVANS: THAT'S RIGHT. THE RESEARCH SHOWS IT'S MORE THE ANNOUNCEMENT EFFECT THAT YOU ARE GOING TAKE THIS ACTION THAN YOU DO ACTUALLY TAKE THE ACTION AND I THINK THAT HAS A LARGER EFFECT THAN THE FLOW. MARKETS ARE OBVIOUSLY INTO LOOKING FOR FLOWS BECAUSE THAT WHAT THEY'RE TRADING ALL OF THE TIME AND SO YOU'LL SEE DAY TO DAY VOLATILITY THERE, BUT AT THE END OF DAY, LONG TERM, I THINK IT'S HOW MUCH YOU PUT IN PLACE THAT MATTERS.

LIESMAN: IS THERE A LEVEL AFTER WHICH MORTGAGES, RATES COULD RISE THAT WOULD PROMPT YOU TO THINK THAT THE FED NEEDS TO GET BACK INTO THIS MARKET?

EVANS: I DON'T THINK MORTGAGE RATES ARE GOING TO BECOME DISCONNECTED FROM THE WAY THE ECONOMY IS GOING. SO IF THAT WERE TO BE CONSISTENT WITH RISING INTEREST RATE LEVELS WHICH WERE SOME TYPE OF FINANCIAL DISTRESS, YEAH, WE WOULD HAVE TO STOP. I WOULD HAVE TO STOP AND RE-THINK WHETHER OR NOT THE RECOVERY WAS ON TRACK. I WOULD NOT BE SURPRISED TO SEE INTEREST RATES EDGE UP IF THE RECOVERY IS STARTING TO TAKE HOLD. THAT'S A NORMAL PART OF THE BUSINESS CYCLE.

LIESMAN: WHEN YOU THINK THE FED WILL REMAIN EXCEPTIONALLY LOW FOR AN EXTENDED PERIOD. DO YOU NOT EXPECT THE FED TO RAISE RATES THIS YEAR?

EVANS: I THINK THE LAST TIME WE TALKED IN DECEMBER I SAID, TO ME EXTENDED PERIOD PROBABLY MEANS THREE TO FOUR MEETINGS, SIX MONTHS. I THINK THAT I HAVEN'T SEEN ANY DATA THAT MAKES ME CHANGE THAT, FROM THE TIME THAT WE MAKE THE STATEMENT THAT'S HOW I WOULD START THE CLOCK TO BE GOING AND THAT TAKES US INTO THE FALL AT THE MOMENT AND DEPENDING ON HOW THE DATA CONTINUED TO GO, WE'LL HAVE TO SEE. THE RECOVERY'S PRETTY, YOU KNOW, IT'S NOT AS ROBUST AS WE WOULD LIKE, THE FOURTH QUARTER NUMBER BY ITSELF DOESN'T MA-- FOR THE REASONS THAT YOU INDICATED AS MUCH AS WE'D LIKE.

LIESMAN: COULD YOU SEE THE FED RAISING RATES AND STILL ARGUING THAT IT'S EXCEPTIONALLY LOW IN THE FOLLOWING SENSE, THAT MAYBE ZERO IS NOT THE RIGHT NUMBER, BUT MAYBE 50 BASIS POINTS OR 100 BASIS POINTS WHICH IS STILL BE HISTORICALLY A LOW RATE. HOW DO YOU COMMUNICATE THAT TO MARKETS THAT YOU ARE STILL LOW BUT THE MARKET THEN DOESN'T PRICE IN WHAT THEY CALL THE TERMINAL RATE, THE PLACE THAT YOU'RE GOING?

EVANS: WE WILL MAKE ARGUMENTS JUST LIKE YOU INDICATED SOMEWHERE ALONG THE LINE. ONCE WE GET TO THE POINT WHERE THE RECOVERY IS BEGINNING TO TAKE HOLD AND WE START TO REMOVE ACCOMMODATION. WE HAVE A LOT OF ACCOMMODATION IN PLACE AND EVEN WITH LESS, AS RATES MOVE UP, WE'LL BE ACCOMMODATIVE FOR A WHILE.

LIESMAN: IT SEEMS LIKE, PRESIDENT EVANS, THAT THE FEDERAL RESERVE IS BACK IN IN TERMS OF A BANKING REGULATOR AND IN TERMS OF THE SENATE DISCUSSIONS GOING ON NOW. HOW CRITICAL DO YOU THINK THAT IS FOR THE FED TO DO ITS MONETARY POLICY THAT THE FED BE A BANKING REGULATOR?

EVANS: THINK THAT'S VERY IMPORTANT. WE GET A LOT OF INFORMATION FROM SUPERVISORY ACTIVITIES. I GET BRIEFINGS FROM MY STAFF BEFORE I GO TO WASHINGTON ALL OF THE TIME. REGIONAL INFORMATION IS IMPORTANT AND THAT'S AT THE COMMUNITY BANK AND REGIONAL BANK, SUPERVISION LEVEL. WHEN WE'RE TALKING ABOUT LARGE FINANCIAL RISK TO THE SYSTEM WE NEED TO HAVE AN INVOLVEMENT IN THOSE LARGER INSTITUTIONS AS WELL.

LIESMAN: PRESIDENT EVANS, THANK YOU SO MUCH FOR JOINING US TODAY AND GETTING THROUGH THE SNOW TO BE HERE.

EVANS: THANKS YOU.

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