Tuesday, August 6, 2013

Evans Is Third Taper Talker This Week
FRB-Chicago President Charles Evans (a voting member of the FOMC this year) told reporters today, “We are quite likely to reduce the flow of [QE bond] purchases rate starting later this year--I couldn't tell you exactly which month that will be--and it's likely to wind down over time in a couple or few stages.” Asked if he would rule out voting to start tapering QE at the September 18 meeting of the FOMC, Evans said he "clearly" would not. That makes him the third Fed official in two days to suggest that a September pullback on QE bond purchases is possible. He also said that the federal funds rate would remain near zero until the unemployment rate falls below 6.5%, which he doesn’t expect to happen until mid-2015.

Two other Fed officials this week signaled the possibility of a QE pullback starting in September. FRB-Dallas President Richard Fisher on Monday said he would prefer to start cutting back on bond-buying next month, while FRB-Atlanta President Dennis Lockhart said on Tuesday that the Fed might make reductions starting in September or wait longer if economic growth fails to pick up.

A few weeks ago, FRB-Minneapolis President Narayana Kocherlakota called for the Fed to lower its threshold for considering a hike in rates to 5.5% unemployment. Evans said the Fed is already open to keeping rates low well beyond the current 6.5% threshold, but if Fed officials thought it would be useful to lower the threshold, he would not have a problem with doing so.

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