Charles Evans’s speech
Charles Evans, the chief of the Federal Reserve Bank of Chicago, spoke at the Official Monetary and Financial Institutions Forum in London on March 25, 2015. His speech was titled “Risk Management in an Uncertain World.” Evans discussed his outlook for the US economy. He also outlined the risks that he sees around his outlook and how they’ve shaped his views about normalizing the Federal Reserve’s monetary policy. Evans’s views pertained specifically to normalizing the federal funds rate and the appropriate timing and pace that he sees for it.
Evans’s views came close on the heels of the monetary policy statement and forward guidance announced by the FOMC (Federal Open Market Committee) on March 18, 2015. His views about policy normalization assume more importance since, in 2015, Evans is a voting member of the FOMC.
Charles Evans was confident about the standing of the US economy and its outlook. He stated, “Our outlook for economic activity is probably on its best footing since the recovery began in mid-2009.”
The Bureau of Economic Analysis released its third estimate of US economic growth for 4Q14 on March 27. According to its report, economic growth slowed down to a 2.2% pace in the last quarter of 2014 compared to a 2.6% pace estimated in the advance reading.
Though the pace of economic growth came down significantly from 3Q14, when it had grown by 5.0%, the economy hasn’t lost its footing. Growth in 1Q15 should slow because consumer spending hasn’t picked up as expected. However, the still-depressed gasoline prices, which have fallen due to a plunge in crude oil prices, are expected to leave enough money on the table to let consumers come out and shop. Crude oil prices, which have negatively affected ETFs like the United States Oil Fund (USO) and the VanEck Vectors Oil Services ETF (OIH), apart from major oil companies like ExxonMobil (XOM), Schlumberger (SLB), and BP (BP), recovered a bit in February.
Evans expressed his concern about inflation and advocated caution when it comes to increasing the federal funds rate in a hurry. We’ll look at his views in detail in the remainder of this series.