By Alyce Andres-Frantz

ROCKFORD, Ill. (MNI) – Chicago Federal Reserve Bank President
Charles Evans Thursday said he will remain “open minded” about the size
and scope of the Fed’s current quantitative easing.

Evans, an FOMC voter, was the keynote speaker at the Rockford
Chamber of Commerce Economic luncheon and told reporters after a speech,
“I am open minded about the current size of our program.”

Evans explained to reporters that the current QE program is
“reviewed” by the FOMC at its scheduled meetings. “I will remain open
minded about that review.”

“It is quite likely that we will continue with the $600 million,”
in purchases by June, but Evans added “that might not be enough.”

Evans also said it would “take a change in the economic outlook,”
to change the Fed’s current QE plans.

Evans said QE adds confirmation that the Fed “will keep rates low
for a long while.”

Evans’ own forecast includes 4% GDP growth in 2011 and 2012, which
“is at the higher end of FOMC forecasts.”

Evans reiterated that while there have been some “good developments
in the U.S. economy, there is still caution regarding resource slack and
low inflation.

However, Evans said Thursday’s January CPI report, in which the
core rate was up 0.2%, “is moving in the right direction to 2%,” the
latter of which is the Fed’s long-term inflation target.

January core CPI YOY was 1%, but Evans said “1.5% YOY would get my
attention.”

In an earlier question and answer session with the audience, Evans
said the global economy has been witness to “very strong growth.
economies (abroad) are getting stronger, putting pressure on resource
growth, which has nothing to do with (U.S.) monetary policy.”

Evans added that inflation in the U.S. “has not picked up so there
is a disconnect” between the global economies and the U.S.

Evans noted that grain prices have been on the rise due to a
draught in Russia, which has “pushed up supply pressures.”

Additionally, Evans downplayed recent increases in certain
commodity prices in off the cuff remarks in his official speech. There
he suggested that only certain commodity prices have risen dramatically
including gold, jewelery, dairy, meat and education but those have been
tempered by categories such as recreational goods and mens clothing.

Also, Evans repeated to the audience that if inflation rises too
quickly, the Fed could employ a number of tools including paying
interest on excess reserves and reducing the size of the Fed’s balance
sheet to name a few. But Evans added that there are a wide variety of
tools the Fed could use “if we need to turn quickly.

Evans also told the audience that unemployment in the range of
5% to 5.5% could be sustained without inflationary pressures. However,
he added that, “over time that rate can change.”

Evans also told the audience that while many seem to be concerned
about hyperinflation, “I am not looking for hyperinflation at the
moment,” adding that “if it were easy to generate inflation by printing
money, we would have seen it already.”

Evans, in his speech said there are bright spots on the horizon,
but that the U.S. has a long road to full utilization.

Also, Evans in his address stated that he still supports low rates
for an extended period, but said “at some point the outlook for
inflation will signal the appropriate time to remove policy
accommodation. And should our strategy prove to be a little too
successful and inflation rise faster than we expect, we have the tools
to tighten quickly as needed.”

Moreover, in his speech as well as comments to the audience and
press, Evans reiterated his view that unemployment is too high and
prices too low.

–email: aandres@marketnews.com

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

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