COLUMBUS, Georgia The Federal Reserve will continue to trim its monthly asset purchases at a $10 billion pace, an influential Fed official said on Monday as he also detailed how the U.S. central bank might rewrite its plan for keeping interest rates low.
The blunt comments from Charles Evans, president of the Chicago Fed and among the most dovish U.S. policymakers, were perhaps the strongest indication yet that the Fed will keep cutting stimulus at each upcoming meeting, including one next week.
"We're at a point now where we're ... moving away from purchasing assets, we're tapering, and our balance sheet continues to be very large but we're not going to add to it as much," Evans told a gathering at Columbus State University.
"The last two meetings we reduced the purchase flow rate by $10 billion and we're going to continue to do that," he said flatly.
The Fed, responding to a broad drop in unemployment and a pick-up in economic growth, is now buying $65 billion in bonds each month to reduce longer-term borrowing costs and stimulate investment and hiring. The stimulus program started in 2012 and continued until December 2013, at a $85-billion pace.
With the bond buying winding down, the Fed's more immediate challenge is re-writing a pledge to keep rates near zero until well after the unemployment rate falls below 6.5 percent. Because joblessness has fallen quickly to 6.7 percent, policymakers are debating how to adjust that pledge without giving the impression they will tighten policy any time soon.
The Fed could make the delicate change at a policy-setting meeting March 18-19, which will be Janet Yellen's first as chair.
Evans is credited with conceiving the idea of tying interest rates to economic indicators such as unemployment and inflation. On Monday, he said the new guidance should reinforce that rates will stay low for "quite some time" and that much will depend on continued improvement in the labor market.
"It ought to be something that captures well the fact that (rates are) going to continue to be low well past the time that we change the language," Evans told reporters after giving a speech.
"Tick through the different labor market indicators: payroll employment, unemployment, labor force, vacancies, job openings and things like that," he continued. "We somehow want to capture that general improvement in labor market indicators, but that is hard."
Evans added that the Fed will be accommodative "for really quite some time," and added that he expects the first rate rise to come around early 2016.
Looking deeper into the future, he said the Fed would not have to sell the mortgage-based bonds it is now buying up, but could instead let them mature - an idea endorsed by other Fed policymakers.
After five years of purchases in the wake of the 2007-2009 financial crisis and recession, the central bank's balance sheet has swollen to more than $4 trillion.
(Reporting by Jonathan Spicer; Editing by Meredith Mazzilli and Andrea Ricci)
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