By Alyce Andres-Frantz

CHICAGO, June 8 (MNI) – Charles Evans, President of the Federal
Reserve Bank of Chicago Tuesday said the evolving situation in Europe
will likely have a limited effect on the U.S. economy.

Evans, who was the keynote speaker at a University Club of Chicago
breakfast meeting, said in an audience question and answer session that
while risk is higher than before, the net effect of the situation in
Europe will have a “limited effect on the U.S.”

Admittedly, though, Evans told the audience he gets “nervous when
global economies slow.”

Evans later told reporters that the “European packages,” which
include aid from the European Union, International Monetary Fund as well
as the European Central Bank’s purchase of certain assets are great
sources of support for Europe.

Evans told the audience that the reduction in Treasury rates, given
the change in financial conditions in Europe over the past few weeks,
was a result of a flight-to-quality. “We saw that earlier this year,” he
said.

It remains to be seen how this scenario will play out, Evans told
the audience, but then said to reporters that while the markets
“continue to go through this process” of lower rates it should not have
a big net effect on the U.S.

Evans also told the gathering that the Fed is in no hurry to raise
rates. He reiterated to reporters later that Fed policy will remain
stable for “3-4 meetings, which translates into about 6-months,” but
added that this is directly dependent on inflation and the strength of
the U.S. economy.

“Unemployment is still very high,” and a situation the Fed will
have to “grapple with for some time,” Evans told reporters. Furthermore,
he said “the economy is growing but not at a really, really strong
rate.”

While Fed policy is currently both appropriate and “accommodative,”
the question remains if this “resilient” U.S. economy can continue the
“recalibration” it needs, Evans told reporters. “We are proceeding quite
well.”

Meanwhile, Evans told the audience earlier that the U.S. consumer
will not to be a source of global or U.S. growth. Furthermore, He
expects the U.S. consumer “to be wary about its prospects,” especially
given the U.S. unemployment situation.

Evans told the audience of his surprise that while the consumer
savings rate has risen, the U.S. savings rates is not higher. “Over the
next couple of years, this will effect the economy, and this will be a
good thing.”

Evans reiterated that while pending new bank legislation is
important, the future of banking is good “for those with clean balance
sheets.” He added that “margins are good.”

He said that getting banks to the “right size” will be important
and large banks should have no advantages.

While generally positive on the U.S. economy, Evans told the
audience that the commercial real estate market is not likely to “come
back quickly.” He also said health care reform would not “retard” growth
but certainly was something “we will keep an eye on.”

–email: aandres@marketnews.com

** Market News International Chicago Bureau: (708) 784-1849 **

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