Charles Evans, up close and personalJuly 22, 2020
Ongoing opportunities to hear regional Fed presidents speak from their houses and hearts will stay with us. This coming Thursday, the Global Interdependence Center hosts, “The New Monetary Policy,” with Brandeis’s Stephen Cecchetti and Paul F. O’Brien formerly with Abu Dhabi’s investment authority. Quite the pair, and you can sign up for free here:
In a GIC webinar last week, Chicago Fed President Charles Evans spent an hour answering questions.
Overall: On wartime footing, the Fed is willing to do whatever it takes, but monetary policy can only do so much. In 2011, when fiscal policy hung up with the battle over the debt ceiling, monetary policy was “called back.” Winding down QE2 was about as unpopular as QE2 itself, with both complaints often coming from the same people. [On low rates and asset inflation] We’re not the primary factor here. Studies show the long-standing worldwide decline to a much lower neutral rate has ramifications for asset values.
On Main Street and mispricing: I don’t see a pricing distortion. I see entities being helped that are still credit-worthy, still provide benefits to their communities, and will be OK going forward. Purchasing some corporate debt helps the markets find the correct price, not the distressed price.
We can’t make grants, we can only make loans, and lots of these people need grants. Most of our programs are not priced at a generous rate.
I would think about leaning into a strong labor market if inflation were high. We were raising rates at the end, we thought we would get more inflation: Tax reform and the fiscal package was really something…err…when unemployment was so low. But then the tariff and trade discussions created a lot of uncertainty and got in the way of that.
A participant in ongoing Fed regional listening programs, he’s heard a lot of poignant stories. In 2012 Terry Mazany of the Chicago Community Trust said, “Given my work on the ground dealing with homelessness and unemployment, to have a Fed president who feels very passionately about his responsibility to lead efforts to lower the unemployment rate means a lot.”
But that doesn’t apply to debt-laden adventures: “When prices move in an unfortunate way…a bad deal is just an investment that didn’t pan out if there are no multiples. There will be winners and losers. That’s what capitalism is all about. If you win, you win. If you lose, you take your losses and you go home.”
Looking forward, Evans “doesn’t put too much weight on therapeutics and a vaccine coming out much sooner than expected and effective for a long time,” and is instead troubled by the effects of a second wave on unemployment. In his happier scenarios, unemployment will run at 6.5%, a recessionary number, through 2021.
That GIC question, the speaker’s #1 number to watch: Unemployment and the labor market in general, which captures the state of “economic wellbeing. We are really paying attention to that, and we need every other policy player to be in that game too.”
— Philippa Dunne and Doug Henwood