During the question-answer period of Charles Evans' appearance Wednesday morning at the Lake Forest-Lake Bluff Rotary Club, Rotary member Larry Kuhl noted the recession has been going on since 2007, and he wanted to know when it would be over and what would end it.
Evans, president of the Federal Reserve Bank of Chicago and a member of the Federal Open Market Committee that sets monetary policy for the country, couldn't give Kuhl a definitive answer.
“My legalistic response is that the recession ended in June of 2009,” Evans said. “In fact, the recovery has been pretty weak. There is a real question of how this will play out. I can’t say I know the answer to that.”
Before more than 200 people at the Lake Forest Club, Evans noted there could be a “deep, structural at work in changing the way the economy is running.”
“We've had changing employment relations between workers and businesses over the last 20 to 30 years,” he said. “That’s a fact of life. Technology is changing. Skill requirements for jobs are changing. They don’t change instantaneously, but over some longer period of time, those influences accumulate to the point where the next time you get to a point where things don’t work out so well and you’re in a downturn, all of a sudden you can’t ignore some of those lingering issues.”
Evans didn't sugarcoat the issue, indicating the Federal Reserve's policy actions in conjunction with a stalemate at the political level have fallen short of getting the economy moving.
“I would like to come back next year and say we won’t be looking at this going forward, but I can’t say that for sure,” he said.
Banks See Low Loan Demand
Evans said the economy's attempted rebound was undermined because the collapse of the housing market and record foreclosures factored far greater than economic experts predicted. Banks have appeared to be slow in loaning money, but Evans said demand is actually low.
“Banks are raising capital and shrinking their balance sheet,” Evans said. “They are not necessarily extending loans, although when I do talk to bankers, really, quite uniformly, they tell me, and they do have a lot of funds, that they would like to make good loans. There just isn’t the demand for loans that they would like.”
Conversely, banks are waiting for the housing market to improve.
“It’s simply a fact that the state of so many financial portfolios is weak because housing values, commercial real estate values are low,” he said. “If you get the valuations up, the asset quality of the bank would improve and they would be able to make more loans than they currently are.”
However, the laundry list of “what ifs” is long to get the economic ball rolling.
“If we could generate a little more growth, less uncertainty, get a little hiring, more spending so there is more income in people’s pockets, more demand, business will produce,” he said. “We are not very far from getting that going.”
Inflation Rates to be Low
Evans said the rate of inflation in 2013 and 2014 probably will run “at the lower end” of 1.5 percent to 2 percent. However, he said the Federal Reserve should do more.
“I would much rather get the economy going strongly even at a cost of slightly higher inflation than most central bankers would like,” Evans said.
To read more about Evans’ speech, read Bloomberg and Dow Jones (see attached PDF).