‘Extremely Sluggish’ Growth Ahead in H2 –Chicago FED’s Evans
Speaking in Bloomington, Illinois, today, Chicago FED president Charles Evans says:
* Too early to say we’re nearing a bottom in housing, but it’s “less bad”
* Q2 GDP growth (1.9%) likely to be revised up (bright sides: trade deficit has shrunk a bit; productivity is strong). 7 months ago, Evans “was concerned things could turn out to be much worse”
* However, inflation is worse than forecast, and Evans takes a page from Plosser’s book and says headline inflation has been troubling, and should be an important concern for monetary policy. He is concerned about persistent price increases spurring inflation expectations. (His forecast is, of course, dependent on energy and commodity prices moderating)
* Since June forecasts, growth risks have increased and inflation risks remain elevated. Export growth may taper off as economies of major US trading partners slump
* Current Fed funds rate (2%) is accomodative but “not especially stimulative,” since credit is so tight. Further rate cuts aren’t likely (inflation expectations would ignite). But markets still need “substantial” liquidity, and recent liquidity facilities may be a better tool in that regard.