Fed banker questions need for stimulus
CHICAGO — Chicago Federal Reserve Bank President Charles Evans said Monday that conditions seem right for an interest-rate increase, but that with an improving economy, a major infrastructure-building program could be ill-timed.
While inflation remains too low to meet the Fed targets and wage growth is still weak, the U.S. labor market is “kind of tight,” he said in a speech to the Executives Club of Chicago. “We are very close to full employment.”
That’s a term the Federal Reserve uses when most people who want jobs and are able to work have jobs.
In such an environment, he said he wouldn’t favor a program to build roads, bridges and other infrastructure merely as a means to stimulate the economy. But he said the country needs a program for building highways, bridges “and things we need. An infrastructure plan would be terrific.”
With unemployment at 4.6 percent, he said, “You don’t need stimulus; you do need a plan for roads and bridges.”
In the past, some economists advocated an infrastructure spending plan to bring life to an economy going through a slow post-recession recovery, but Congress has been reluctant to take on more major spending.
During the recent presidential campaign, candidates both Republican and Democratic talked about rebuilding infrastructure to strengthen the economy. And construction-related stocks such as Deere and Caterpillar have soared in anticipation of an infrastructurebuilding program that presumably would be spearheaded by President-elect Donald Trump. Deere and Caterpillar make machinery used to dig and move dirt for construction.
Evans said conditions in the economy suggest a trend toward the 2 percent inflation level the Federal Reserve wants to see as a sign of a stronger economy. With the buildup in employment and other signs of strength, the Fed’s Federal Open Market Committee is widely expected to raise rates at its meeting next week.
Evans is expecting the economy to grow about 2 percent to 2.5 percent in 2017, and he said corporate tax cuts could help stimulate growth. Yet while Trump has said he plans to push for tax cuts, Evans said it was too early to predict the impact because specifics are not yet clear.
Apart from domestic policy, Evans said the U.S. economy has been held back by slow growth throughout the world. U.S. companies have been reluctant to invest in new equipment and facilities because demand for products has been slow, she said.
“The U.S. economy is the strongest in the world,” he said. Yet he noted headwinds such as an aging population that will continue to be a drag on growth and perhaps fight against the 3 percent or 4 percent growth that has occurred after previous recoveries.