Just in case you have any thoughts that people at the Fed might have become slightly less dovish on inflation, rest assured, they have not.
Today on Squawk Box on CNBC, Chicago Fed president Charles Evans averred (Pardon the all caps, but that’s how the transcript came in):
EVANS: WELL, I THINK EMPLOYMENT GROWTH HAS BEEN VERY GOOD FOR QUITE A LONG TIME NOW. AND THAT'S BEEN AN IMPORTANT CRITERIA FOR US TO JUDGE SUCCESS. IF YOU GO BACK TO SEPTEMBER 2012 WHEN WE ANNOUNCED OPEN ENDED QUANTITATIVE EASING, ADDITIONAL PURCHASES, WE SAID WE NEEDED TO SEE SUBSTANTIAL IMPROVEMENT IN THE LABOR MARKET OUTLOOK. WE'VE SEEN THAT AND WE'VE SEEN WELL OVER 200,000 FOR A LONG, LONG TIME. SO GOOD, GOOD PROGRESS UNEMPLOYMENT RATE GOING DOWN. THAT'S GOOD. ECONOMIC ACTIVITY SEEMS TO BE STRONG. AND SO I’M FEELING PRETTY CONFIDENT ABOUT THE OUTLOOK.
Oh, so things are going quite well. So then it might be a good time to turn to ever so slightly tighter monetary policy, then.
Nope, says Evans. We need more “accommodation” and more inflation:
EVANS: WHEN I ANSWER THE QUESTION THAT'S POSED TO US ON WHAT APPROPRIATE MONETARY POLICY IS IN ORDER TO HIT OUR OBJECTIVES, IT COMES OUT FOR ME THAT WE SHOULDN'T BE RAISING RATES BEFORE 2016. IF THINGS TRANSPIRE AS I'M EXPECTING. EMPLOYMENT HAS BEEN GOOD. I’VE BEEN EXPECTING THAT. I'M HOPING THAT INFLATION IS GOING TO PICK UP. AND I THINK WE NEED TO SEE MORE OF THAT. SO, YEAH, I THINK I'D LIKE TO HAVE MORE CONFIDENCE THAT WE'RE GOING TO GET TO 2% BY 2016 WOULD BE GREAT. 2017 SEEMS LIKE THE MINIMAL ALLOWABLE THING. SO I THINK TO GET THERE, I THINK WE NEED MORE CONTINUED ACCOMMODATION.
The obvious question is — and the show's hosts ask it — is, "if the economy's doing so well, [which it isn’t] why are interest rates still effectively at zero?" The current line seems to be that the official price inflation rate must be pushed up to two percent before one could even think about raising interest rates.
The reality, of course, could be that the Fed understands just how fragile this "recovery" is, and also that the the federal government relies on low interest rates. If the cost of debt service on the national debt goes up, the feds are suddenly in very deep trouble. Moreover, if the cost of debt for ordinary people rises, homeowner and consumer debt will no longer be able to "drive" the economy as is the current plan.
For now, there's still no end in sight to ZIRP or to "accomodation."
