Here’s Where the Fed Sees the U.S. Heading in 2013

Speaking at the Asian Financial Forum in Hong Kong, Chicago’s Federal Reserve President Charles Evans painted a picture of the next two years of economic growth for the United States. He said the economy is expected to grow at a rate of 2.5 percent in 2013 and 3.5 percent in 2014, according to a Reuters report. This will translate to a drop in unemployment from its current level of 7.8 percent to 7.4 percent this year and approximately 7 percent in 2014.

“One good indicator of labor market improvement would be if we saw payroll employment increase by 200,000 each month for a number of months. We’ve been averaging about 150,000, but it’s been very uneven…we need a higher pace of employment growth and less volatility in that pace,” said Evans.

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Evans, who had a hand in the Fed’s current policy, explained that the central bank’s decision last year to allow specific economic conditions to guide monetary policy should help the recovery without causing inflation. He added that the policy will make sure interest rates stay low even after the economy revives. In December, the Federal Reserve increased asset purchases meant to stimulate growth, and committed to keep rates close to zero until the unemployment rate falls below 6.5 percent, if inflation does not rise above 2.5 percent…

“Given more explicit conditionality, markets can be more confident that we will provide the monetary accommodation necessary to close the large resource gaps that currently exist,” said Evans.

After pushing for the Fed to take a more activist role in the economic recovery with this “threshold-based policy” for more than a year, this was Evans’s first speech since mid-2011 that did not specifically call for further Federal Reserve easing, indicating that he is now assured that the current policy will lower unemployment.

But he has his critics. Kansas City Fed President Esther George has suggested that the bond-buying program could overheat the economy, which will cause inflation to increase. Last month, the Federal Reserve forecast U.S. gross domestic product would grow 2.3 percent to 3.0 percent this year, while inflation is expected to remain below 2 percent.

Evans, one of the Fed’s several policy “doves,” rotated into a voting position on the central bank’s policy-setting panel this year.

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