The president of the Federal Reserve Bank of Chicago says the economy is still going strong - but also faces some short and long-term challenges.
Chicago Fed President Charles Evans said it wasn’t uncommon to see 3.25 percent annual economic growth not too long ago. But he thinks 1.75 percent is a more realistic expectation today.
Evans said high growth rates between the early ‘80s and the housing market crash were due to “smart” labor force growth, more women entering the workforce, and the dominance of the baby boomer generation. Now, he says people are working fewer hours, and productivity is only seeing modest increases.
“There’s nothing that monetary policy can do to adjust its setting to consistently get growth above trend without generating something like more inflation. Other public policies could have some effect," he said.
Some of those policies include working to increase labor force participation rates, bringing in more labor, and incentivizing more innovation. But he notes those actions would come from the political realm.
He said the Fed has only one “blunt tool” - hiking or cutting the federal interest rate - that impacts the entire economy.
Other challenges volatile international trade negotiations, slowing foreign growth and uncertainty in domestic demand. Evans said central banks like the Fed can address some of these concerns to an extent, but have limited control.
Evans said the way to address income inequality is to implement more public policies that promote inclusiveness.
“The days when you could, with a high school education, enjoy a middle class lifestyle are long gone. Today, the rules are completely different, and we need to somehow figure out how to provide the right skills for people so they can contribute," he said.
He said one example is the new Illinois Workforce Equity Initiative that was mentioned by Illinois Central College President Dr. Sheila Quirk-Bailey in a speech preceeding his.
The new $20 million initiative launched this year seeks to train underrepresented populations across the state to get the skills for highly-paid jobs in demand. Those include careers in computer network administration, welding, and nursing. ICC is spearheading that program.
While he expects lower growth and interest rates to continue for some years to come, Evans believes the American economy is still sitting on a solid foundation.
“I think that the U.S. economy is doing quite well. We’re looking at growth a little bit above trend. The consumer is strong. Labor markets are good. I think this translates to a good Midwest economy, too," he said.
Evans spoke Wednesday to the Greater Peoria Economic Development Council at Jump Trading Simulation and Education Center in Peoria.
The Federal Reserve Bank of Chicago includes parts or all of Illinois, Michigan, Iowa, Wisconsin and Indiana.