By Yali N’Diaye

WASHINGTON (MNI) – While Atlanta Federal Reserve Bank President
Dennis Lockhart said Tuesday he is “reticent” to do more to stimulate
growth, Chicago Federal Reserve Bank President Charles Evans instead
estimated there is “tremendous” room for further action.

Both central bankers, however, agreed during a joint interview on
CNBC, that the March employment report was a disappointment.

Hence the need to do more, according to Evans, who added that more
accommodation would not cause inflation to spike higher.

Lockhart, however, cautioned that eventually, the Fed balance sheet
will have to be normalized, not to mention that monetary policy cannot
target “specific” segments of the economy.

Besides, it’s not certain that “more really active stimulus in the
form of quantitative easing for example would have that big an effect,”
Lockhart said.

He also warned to keep in mind the longer-term costs in terms of
inflation expectations in particular.

So overall, “I’m a bit reticent at this time to pull the trigger on
any new action,” Lockhart said. “I think we need to see how the economy
evolves.”

At the opposite end of the spectrum, Evans said, “there is a
tremendous amount of room for more accommodation though to help support
the economy.”

He argued that monetary stimulus in the current environment isn’t
generating inflation, noting inflation expectations are anchored.

While inflation has been higher than what he forecast last year, in
his view “there isn’t as much room for inflation to go up as we had
before.”

Besides, “if inflation was a big problem,” Evans said, it would
have remained high after the spike in commodity prices.

Both, on the other hand, were disappointed by March’s employment
figures but maintained their growth expectations.

Lockhart said last month’s employment number was disappointing “but
it’s too early in my mind to really change my outlook” on GDP growth.

And Evans said that while the 2.2% first quarter real GDP growth
advance estimate was “disappointing,” he still expects a growth rate of
about 2.5% to maybe 3% growth over the next 18 months.

“I think it’s too early to say” whether job growth is losing
momentum, said Evans, noting that job growth has been “pretty strong
recently except for the last month.”

The April report due out this week will provide further indication
of the labor market trend.

“I’m hopeful that the job market is working itself out,” Evans
continued. “But we really need some big numbers, and we’re looking for
maybe 150 to 200,000; that’s not nearly enough to make progress on
unemployment.”

Still, Lockhart said the unemployment rate could come below 8% this
year. “I am still looking to a high seven number by the end of the
year,” he said, although it depends on monthly jobs creation and “at
this stage I’d say it’s a little uncertain.”

For Evans, “as long as the unemployment rate is above 7.5%, we can
continue to have really low federal funds rate unless inflation
unexpectedly goes up to a very high level,” like 3%.

“I definitely think we should have strong monetary accommodation,
which we have now,” he said. But “I would like to have more
accommodation.”

“I’d like to make further progress,” he said, adding that if
unemployment did not come down fast enough, maybe additional asset
purchases could be done.

Clarifying forward guidance would also be helpful, Evans commented.

Both clearer forward guidance and additional liquidity would
“further ratify the idea that policy is going to be accommodative for a
very long period of time to get things going,” he argued.

One beneficial effect of asset purchases, Evans said, would be to
convey the idea that the Fed is “committed” to very low interest rates
as long as necessary to get the economy going.

“Additional purchases would reaffirm that commitment,” he said.

And if luck plays in and “something” breaks that allows the
transmission channel to open up, “then we get greater lift in the
economy,” Evans said, noting that “the current slow recovery is hurting
everybody,” including savers.

“I would like nothing better to have higher interest rates on the
strength of a stronger economy.”

And if the Fed keeps doing what it has been doing, interest rates
will eventually increase.

In fact, “I’d like nothing better than to start raising rates
before late 2014″ on the back of a stronger economy, Evans said.

Lockhart warned, however, that while the Fed could theoretically
continue to grow the balance sheet indefinitely, “as a practical matter,
there is going to be a limit because sooner or later we’ll have to
normalize the balance sheet,” while avoiding skyrocketing inflation
expectations.

He did acknowledge downside risks to U.S. economic growth, however,
citing “something breaking in Europe that spills over into the U.S.
economy,” the so-called “fiscal cliff” at the end of this year, and
Middle East conflicts that would result in higher oil prices.

** MNI Washington Bureau: 202-371-2121 **

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