Global inflation greater risk than US economy, top Chicago banker says

Maintaining his full support for US monetary policies against the so-called fiscal cliff, Charles Evans, president and chief executive officer of the Federal Reserve Bank of Chicago, said yesterday that he remained optimistic about the US economy, as an exit plan could be initiated by 2015.

His only concern is the risk of global inflation. Governments should promote sustainable growth with safeguards in place.

Many governments in Asia are moving to stimulate their economies, with newly elected Japanese Prime Minister Shinzo Abe approving ¥10.3 trillion (Bt3.5 trillion) of spending to revive his economy and the Thai government planning to spend billions of baht on infrastructure and populist policies.

Influential members of the global financial and business community gathered in Hong Kong for the Asian Financial Forum were also beaming about Asia becoming a powerful force in the global economy amid worries in the United States and Europe.

"No longer is Asia the factory of the world" but also a strong consumer with growing domestic demand, said Leung Chun-ying, chief executive of the Hong Kong Special Administrative Region.

The delegates were realistic with their worries of the risks for 2013 as in a brief survey they agreed what was keeping them up at night was the European sovereign debt crisis and US fiscal brinkmanship.

Addressing the main concern over the US economy, Evans remained supportive of the US Federal Reserve's asset-purchasing programme, saying that if the labour market improved, there could be an "exit plan" for the monetary policies by 2015 or even earlier. With the improvement of unemployment averaging 200,000-180,000 jobs per month for the next six months, the US could see 1 million to 1.5 million new jobs. This would be a substantial improvement.

The US unemployment rate of 7.8 per cent will likely decrease to 7.5 per cent this year and 7 per cent next year, he said. Growth of gross domestic product should be 2.5 per cent this year and reach 3.5 per cent next year, when inflation is expected to be below 2 per cent.

"The inflation threat is one thing that would give me some concern about advocating more accommodation," Evans said. "If I saw signs of inflation heating up I would be concerned. That is why over the last year or more I have been saying, yes, we should have more accommodation, but we should also have inflation safeguards."