The Indiana Bankers Association hosted its first annual Indiana Economic Outlook Forum last Friday. By all accounts, it was a successful event, with some 200 bankers and guests attending from throughout Indiana.
The two speakers for this inaugural meeting were outstanding. John Ketzenberger, president of the Indiana Fiscal Policy Institute—a member-based organization that provides unbiased, nonpartisan research on state tax policy and budgeting practices—delivered an explanation of current state tax revenues and their prospects for the future. With the Indiana Legislature in session, John’s detailed remarks were timely.
The second speaker was Charles L. Evans, president and CEO of the Federal Reserve Bank of Chicago and a current member of the Federal Open Market Committee (FOMC) of the Federal Reserve Board. The FOMC determines economic and monetary policy of the United States and, to a large extent, the world. Dr. Evans has worked for the Federal Reserve Bank of Chicago for more than 20 years, the last four as president and CEO. He holds a Ph.D. in economics and has taught economics at the university level. He has become somewhat of a contrarian voice, at times casting the dissenting vote on economic and monetary policies considered by the FOMC.
His view is that the United States should maintain an accommodative posture, i.e. low interest rates, for as long as it takes to bring the unemployment under 7 percent from its current level of 8.5 percent. Since the Federal Reserve also is tasked with controlling inflation, he would abandon this accommodative posture should inflation exceed 3 percent annually. He says the long-term inflation goal should be 2 percent or less, but would accept 3 percent on a short- or medium-term basis.
While I imagine that many community bankers in the room agreed with Dr. Evans’ assessment for the sake of the economy at large, I expect those same bankers cringed at the prospect of remaining in this low-rate environment relative to the profitability of their banks.
Economic and monetary policy is difficult to decide. Thank you, Dr. Evans, for sharing your insights.