Chicago Fed President Charles Evans “Market sees something I have not yet seen in the national data”


First On CNBC: CNBC Transcript: Chicago Fed President Charles Evans Speaks with CNBC’s Steve Liesman Today

Chicago Fed President Charles Evans
Image source: CNBC Video Screenshot

WHEN: Today, Tuesday, June 4, 2019

WHERE: CNBC’s “Squawk Box” – Live from the Fed’s business conference in Chicago, IL

The following is the unofficial transcript of a FIRST ON CNBC interview with Chicago Fed President Charles Evans and CNBC’s Steve Liesman on CNBC’s “Squawk Box” (M-F 6AM – 9AM) today, Tuesday, June 4th. The following is a link to video of the interview on

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STEVE LIESMAN: Andrew, thanks very much. Good morning. I’m here at the Chicago Federal Reserve Bank in Chicago with Chicago Fed President Charlie Evans. Charlie, thanks for joining us this morning.

CHARLES EVANS: Good morning, Steve.

STEVE LIESMAN: So, let’s talk about the conference that we’re at here. This is one of the Fed’s business conference, part of a broad effort to what—rethink how you guys make policy.

CHARLES EVANS: Yes. It’s a long effort going on this entire year. We’ve had a number of sessions at Federal Reserve Banks in Dallas, in Boston, and others, where we’ve talked to local leaders, people in the community, trying to ask their perspectives on monetary policy. What does maximum employment mean to them? What does price stability mean? Chair Powell and Vice Chair Rich Clarida have commissioned everyone to think about our long-term framework. It’s a good time to do it. The economy is doing well. Inflation is getting close to 2%. It’s a quieter time. And it’s a good time to think about our framework, sort of an every five-year type of effort. Do we have the right tools? Do we have the right communications? What could we have done differently, perhaps? We have leading academics coming, presenting papers.

STEVE LIESMAN: Do you think a very different way of making policy lies at the end of this process?

CHARLES EVANS: I think we have to be open-minded about that. I know when I think about our current long-run framework, I think it’s a very good one. I think our dual mandate has served us extremely well. I think, thinking hard about what maximum employment really means is very important. Thinking hard about what symmetric inflation objectives really mean is important in conducting policy to achieve that over the medium-term. I think that benefits the entire country.

STEVE LIESMAN: Charlie, we last had a chance to talk in April and it seems like a good amount has changed since then. There are now, well, one new round of tariffs from the President and a threat for another round of tariffs from the President. And the market now is in a sort of almost extreme mode of forecasting coming rate cuts. What’s your view? How do you process these tariff announcements from the President of the United States?

CHARLES EVANS: Well, I think we have to be careful in looking at where the economy is and where we think it’s going. So, it’s only been six weeks since we talked last time, Steve, and I think the fundamentals for the economy continue to be solid. I think the consumer continues to be in a good position. Labor markets continue to be strong. Businesses—business fixed investment is probably not quite as strong as I would like, and there’s probably uncertainty that’s impacting that. And some of what you’re talking about in terms of trade uncertainties, the global environment, how Europe and China and emerging market economies are growing or how they might be slowing down is an issue. And so, I think we have to think about that. We have indicated we’re data-dependent. I’m a little nervous that inflation is underrunning our 2% objective. I said that six weeks ago. And you know, I think that, you know, there is a reason to be thinking about the stance of policy. I’m pretty comfortable with where we are at the moment in looking at the data, but there is uncertainty, for sure.

STEVE LIESMAN: So, a policymaker who’s a little nervous might not do anything, but a policymaker who’s very nervous about low inflation might cut rates. Are you towards that idea of cutting rates in response to low inflation?

CHARLES EVANS: It’s a great question. And I think it sort of gets at the committee’s perspective and how we react to the data. I, frankly, would be a little more aggressive than most in terms of defending our 2% symmetric inflation objective. I think that one of the messages in some of the papers that we’re going to hear about today and tomorrow is: what does it mean to hit your inflation objective? Are there other means, price-level targeting, temporary price-level targeting, over the economic cycle to hit 2% symmetrically? And if you’re going to underrun at the beginning, maybe you should overrun that 2%, 2.5% after that. And so, myself, I could definitely see being more aggressive, but that’s sort of a strategic reaction function question.

STEVE LIESMAN: I get that, and compartmentalized, that makes perfect sense. But now, overly the possibility of not only the existing tariff regime with China, but additional tariffs on top of that, and a possibility of tariffs with Mexico. Tariffs, at least in the first order, raise prices. How does The Federal Reserve cut interest rates in the face of higher tariffs that raise prices?

CHARLES EVANS: Well, for one thing, we’re underrunning our inflation objective at the moment. I mean, it’s 1.6% year over year on the core. We’ve talked about how it’s likely temporary, but I also think that we should be overshooting 2% in order to be symmetric. So, I think the magnitudes of the one-off price increases that you would expect to see from a tariff increase are easily manageable and we can look through that. You know, the concern would be if you saw very strong increases in prices that somehow were accommodated by monetary policy that led to inflation, you know, upwards of 2.5% or more. I don’t see anything like that. I mean, we’re so far from that. Even with a very low unemployment rate at 3.6%, the economy is performing better and differently than it has in the past. The inflationary pressures seem to be not strong, or perhaps absent. And so, I think some light tilt to accommodation on monetary policy is okay. We’re at the low end of what most people think of as neutral. And so, given the economic situation, I think that’s appropriate. I do think that, you know, we don’t want to get in the way of the economy, and the economy has been strong. And I think that our current setting has been appropriate. But if we sense that there was some greater uncertainty, some softening, we’d have to take that into account and ask, ‘Are we getting in the way of the economy?’ I don’t see it that way at the moment, but we need to look at the data.

STEVE LIESMAN: Becky has a question.

BECKY QUICK: Hi, Charlie. It’s good to see you. Thanks for joining us today. We watch treasuries every day—

CHARLES EVANS: Thanks, Becky.

BECKY QUICK: And we’re kind of confused. I just wonder why you think the ten-year’s yielding 2.1% right now?

CHARLES EVANS: Well, you know, I think we have to sort of speculate on things like that. The U.S. is a safe-haven flow. I think there’s increased uncertainty. Other safe haven government bonds like the German bund are also extremely low, and you know, the Japanese bond, too. So, I think investors are responding a little bit to increased uncertainty over the international environment, and you know, I think we just have to think about that. That doesn’t necessarily mean that the U.S. economy is weakening, but we need to be paying attention to the data.

STEVE LIESMAN: I want to pick up on where Becky was leading on that, which is the broad spectrum of interest rates are suggesting low inflation, and I suppose weaker growth. How much concern do you have when the Federal Open Market Committee says, ‘We are being patient for some time to come’? And the market now has a July rate cut priced in and two rate cuts this year with pretty good certainty.

CHARLES EVANS: Well, I mean, at face value it suggests that the market sees something I have not yet seen in the national data. Now, as I go and have meetings with my directors, as I call around businesses, as I hear a little more, if, in fact, there’s more nervousness, then I would, you know, perhaps take that — well, I would certainly take it on board, you know, what that means in terms of the future. But I definitely think with inflation being a little bit on the light side, there’s the capacity to adjust policy, if that’s necessary. But the fundamentals for the economy continue to be solid. The consumer is solid. So, I think we have to navigate this. We have to think through what this really means.

STEVE LIESMAN: One more question, guys at home, if you would bear with me. How do you make a policy, when in a Tweet, the problem that’s created or what the market was reacting to, could go away or it could be back? Does that change how you might make monetary policy, if the proximate cause of what’s happening in the market cannot exist tomorrow?

CHARLES EVANS: Look, we have to be paying attention to the data. We have to be paying attention to market signals where they seem to be seeing some things that we’re not seeing as quickly. I get that. We definitely want to be paying attention to that. But at the moment, nervous about inflation, real side of the economy still solid. Uncertainty a little bit higher, perhaps, you know, with tariff discussions and global growth and all of that. So, you know, we need to be paying attention. We are going to be paying attention. And, you know, I look forward to our next meetings and the rest of them this year.

STEVE LIESMAN: Charlie Evans, thanks very much for joining us.

CHARLES EVANS: Thanks very much.

STEVE LIESMAN: Charlie Evans, Chicago Fed President from the Fed business conference here in Chicago. Guys, back to you.

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