Charles L Evans: Is it time to return to business-as-usual monetary policy? A case for patience Speech by Mr Charles L Evans, President of the Federal Reserve Bank of Chicago, at the 56th National Association for Business Economics (NABE) Annual Meeting, Chicago, Illinois, 29 September 2014. *  *  *  Thank you. I would like to thank the National Association for Business Economics (NABE) for inviting me to speak this morning. The organizers of this annual meeting were farsighted in arranging the conference around the theme of long-term strategies. As the many excellent speakers make clear, there is much to ponder as we contemplate the future of monetary policy. And I welcome the opportunity to talk to you today about my views on the appropriate strategy for determining the timing and pace of our eventual policy normalization. Before I begin, let me note that the views I express are my own and do not necessarily represent those of my colleagues on the Federal Open Market Committee (FOMC) or within the Federal Reserve System. Introduction and summary As you know, for almost six years, economic conditions have led the FOMC to keep its primary policy tool, the federal funds rate, at its effective zero lower bound (ZLB). When will it be time to finally lift the funds rate from the ZLB? Of course, the answer to that question depends on our progress toward our mandated goals of maximum sustainable employment and price stability.
In fact, this is the first crisis episode when the initial reaction of the National Bank was loosening and not tightening the MP. This time, despite the strategy of de facto fixed exchange rate, solid fundamentals and strong official reserve buffers allowed for loosening of the monetary policy and adopting regulatory flexibility. Also, our initiative for access to the ECB backstop facility, which was also supported by other central banks in the region, and the positive ECB response, allowed for wider space for accommodative policies. The symbiosis of these actions has enabled conducive financial conditions, i.e. decline of borrowing interest rates at historically low levels and uninterrupted credit flows growing at a rate of 6% annually, double than in the EU, that helped "ring –fencing" of the labor market, preserving wages and jobs. Where do we stand now, what are the major challenges ahead and is it time for complacency? A common denominator for all policy makers at the moment is the lingering uncertainty. Many scenarios are in place, from smooth and orderly recovery, through strong rebound with price pressures, ending to stalled recovery amidst new and more virulent strains. From a central bank perspective, our advantage is that there is still policy room for maneuver, although narrowed.