Fed’s Evans says employment and inflation need to pick up before policy changes

Chicago Federal Reserve President Charles Evans told CNBC on Monday that employment and inflation will have to pick up substantially before he will change his position on monetary policy.

Speaking after Friday’s hugely disappointing jobs report, the central bank official said he still thinks the employment picture is strong, though significant areas of weakness remain.

“It’s a little more complicated. We’re restarting the economy. A lot of sectors are experiencing growth pains,” Evans said on CNBC’s “Squawk Box.” “Hopefully, it’s just a one-month kind of thing and we’re going to get better employment. I certainly think so.”

Nonfarm payrolls increased by just 266,000 in April, well below the 1 million estimate. That left total employment more than 7.5 million below February 2020, the month before the Covid-19 pandemic declaration.

Evans noted that the job market continues to receive strong policy support through the trillions spent in Congress and the Fed’s own policies.

But as the economy has improved, investors have begun to wonder when the Fed might start pulling back on its measures. The central bank is holding short-term borrowing rates near zero and continues to buy at least $120 billion of bonds a month.

Evans indicated that the key measures the Fed watches – employment and inflation – remain a good deal from levels that would persuade him to tighten.

“I think it’s going to take quite some time for us to actually see it in the data, assess it,” he said. “I can’t give you a time frame.”

In addition to the weak jobs number, inflation remains below the Fed’s 2% average target. Evans said it likely will take months to hit that goal, adding that he would be comfortable if inflation ran a little hot for a while.

“To average 2% you’ve got to be above 2% for some period of time,” he said. “So inflation rates of 2.5% don’t bother me as long as it’s consistent with averaging 2% over some period of time.”

While the market is anticipating that the Fed at least will decrease the pace of its bond purchases by late 2021 or early the following year, Evans did not provide an estimate.

“We’re just going to have to see how the data come out this year,” he said. “When they’re stronger, when we’re close to our employment mandate and inflation’s picking up, we’ll be talking about that.”