Charles L. Evans took office as president and CEO of the Federal Reserve Bank of Chicago in September 2007, on the eve of the Great Financial Crisis. He leaves, reaching the office’s mandatory retirement age of 65, amid the still-glowing embers of a worldwide pandemic.
Through it all, Evans led the Chicago Fed and served as a member of the interest-rate-setting Federal Open Market Committee, advancing the Federal Reserve’s dual mandate of fostering price stability and inclusive maximum employment. When asked to describe him as a policymaker, colleagues say Evans is unfailingly congenial and a creative thinker, deeply rooted in data and a consistent seeker of differing views. At the Bank, Evans has always been known as Charlie, pursuing an atmosphere of inclusion and collegiality—both as a reflection of his personality, he said recently, and as a means to fulfill the Bank’s public-service mission.
On the eve of his retirement in January, Evans sat down to reflect on a historic tenure with the Bank’s Steve Johnson.
Q. You faced extremely challenging economic conditions at different points during your tenure, beginning with the Great Financial Crisis of 2007–08 and then more recently with the Covid-19 pandemic and recovery. What have these unusual events taught you?
A. You have to be bold to achieve your objectives when we’re so far away from the normal setting of the economy. During more normal times, during much of the era when Alan Greenspan was Fed chair, there were periods where interest rates really didn’t change very much. And monetary policy really is best when it can be in the background, and you just let the fundamentals of the economy function.
But then, all of a sudden, you get these big shocks—9/11, the tech bubble, the Great Financial Crisis—and you’re driven way beyond normal outcomes. And you just have to be bold and think about new ways to adjust things.
Q. Which leads me to the next question. People on the outside may not think of economics as an especially creative field, but a close colleague of yours says that creativity has been a hallmark of your tenure. It seemed like you recognized when the old tools really weren’t working well and then turned to more innovative ones to pursue the Fed’s goals. Where does that impulse come from?
A. I think it’s keeping our eye on the objectives that we’re seeking. We’ve got a dual mandate to provide monetary financial conditions to support maximum employment and price stability. So, after Lehman Brothers collapses in September 2008, when the unemployment rate goes above 10% and inflation’s very low, you know that accommodative monetary policy would help bring unemployment down and also increase inflation. Well, once the federal funds rate gets to 0%, like we did in December of 2008, we can’t do more.
And so, in March of 2009, the Bernanke Fed bought $1.75 trillion of mortgage-backed securities, $300 billion of Treasury bonds, some agency debt—and it was just a lot of asset purchasing. And what nobody could have appreciated at the time was that it wasn’t enough.
Long-term unemployment just wouldn’t budge because businesses were worried about survival. It was existential. And so they were carefully making sure that they could survive before they started thinking about innovating and going forward. Inflation was low.
So we spent eight years with the 0% lower bound, where interest rates can go no lower. Eight years. I mean, my wife was constantly saying, “Don’t cut interest rates—I need a higher interest rate from my bank.” That was a perfectly sensible individual desire if you’ve got any savings at all. But for the economy, we needed accommodation. So we had to think outside the box.
Q. Turning a little bit to the personal, at your final town hall for Chicago Fed employees, one of your colleagues called you “very approachable, very friendly, very outgoing.” Another marked the occasion by saying this was the “last chance to rib Charlie.” At the Bank, were you consciously trying to set a tone of collegiality and a certain amount of looseness?
A. Consciously trying or just sort of my nature? It is my style to inject as much informality as seems reasonable. I just think that I’ve learned that you have to work to be inclusive in the culture. We benefit when we get more people in the room with different perspectives. But just getting people in the room isn’t enough. You have to find a way to encourage them to contribute. And maybe there are some cultures where formality is how they go about tackling issues, but I think that trying to set people at ease, trying to leverage the talents that we have, is really very important.
Q. The Bank has established several public service initiatives during your tenure, including recently the Lead Service Line Replacement project and Project Hometown, which looked at equity and Covid-19 recovery in our communities. How do you see efforts like these fitting in with the Bank’s core mission of serving the public good?
A. We normally think of the Federal Reserve as simply a central bank implementing monetary policy. And you can imagine a very narrow function there, especially if you don’t have the dual mandate, if it’s simply price stability. When you get into thinking about the mandate very carefully, you realize you need to understand the structure of the economy. What is it about the fundamentals? What is it about the growth rate that can be repeated year after year after year under the best conditions? It depends on people’s labor force participation. It depends on technological innovation, productivity, competition, early childhood development and how that leads to better educational outcomes—all of those things go into achieving the best economic outcomes. So, with Project Hometown and looking at community economic development, of course it makes perfect sense to be talking about how communities are challenged by all of those forces.
Q. In the course of your career you’ve seen the Fed go from not saying anything when it changed interest rates—and leaving it up to market participants to decode—to communicating a whole lot about current and prospective policy. Why did the Fed do this, and what has been the impact of this evolution?
A. I think of this as a natural evolution over time. It’s just not sustainable to maintain this aura of mystery, opaqueness—although so many people would say that’s the standard operating procedure of central banks going back in time.
Before 1994, a Federal Open Market Committee meeting ended, and there was a press release that said: “The meeting has ended.” And it didn’t say what, if anything, was done. Then, the New York Fed’s Open Market Trading Desk would take an action. And then people would go, “Oh my gosh, they just increased rates by 25 basis points,” or something like that. Well, there’s an advantage to people being able to figure that out. So it’s better if you’ve got transparency, and people can make plans.
We need the public support. When you’re opaque, there’s a lot of noise and criticism that comes with just our normal policy actions during difficult times. The more we go out and talk about what we’re doing, how it’s supporting the economy, how it’s finding its way into the local community, I think it builds support.
Q. You have been a proponent of more transparency from the Federal Open Market Committee and were on the subcommittee that developed what is now known as the “dot plot,” which allows committee members to share their economic projections with the public. What was your initial goal in establishing this tool, and has it met that objective after seeing it in use for several years?
A. I don’t think I’m inaccurate to say I’m the most full-throated advocate of publishing federal funds rate projections, which have become the dots. It’s sort of like, you can project that the Bears will be in the Super Bowl, but you really ought to fill out a little more of the details, like, how do they beat the Packers twice, and how do they win? Details matter.
Under Chair Bernanke, we started doing the Summary of Economic Projections. Four times a year, we’d submit a forecast for the next couple of years. And you’d say, “Two years from now, the unemployment rate is going to be 4-1/2%, and inflation is going to be 2%.” But you didn’t have to show your work. You didn’t have to say how many times or by what the point spread it would be that the Bears beat the Packers. And therefore the forecasts really weren’t that useful.
So now, when the Chair is giving opening remarks at the post-meeting press conference, four times a year there is a fresh dot plot. On some occasions, the array of dots is supportive of the Chair’s messaging. On other occasions, there may be less consensus for appropriate policy over future meetings. This may show up as a Rorschach-like scattering of the dots, and the Chair may wish everyone to avert their eyes from the uncertainty around such conflicting messages. Nevertheless, there are times when it’s extraordinarily useful. In March, we raised the funds rate by 25 basis points. If the Chair had said, “I can’t tell you anything more,” we would have been laughed out of town. So the dots are very important as foreshadowing.
Q. Looking back over your career—which I imagine you’ve been doing a fair bit as retirement approaches—what is one thing you would have done differently in any particular monetary policy situation?
A. Oh, man, I think I would have bought a better crystal ball. If I had appreciated that the current inflation—supply-shock-induced high used-car prices and all of that, the semiconductor chips—was going to be much more persistent than the transitory thing we started saying at the beginning, I would have moved earlier.
Once we started doing 75 basis point increases, we made up for lost time very quickly. It’s hard to imagine that we would have been at a higher funds rate than we are at now. It just would have been more gradual.
Q. Let me ask you the same question about your role as CEO of the Bank. What is one thing you would have done differently in a management situation as leader of the Chicago Fed?
A. I said it at the town hall, I’ve said in other places, because I mean it. I would have hoped that I would have understood earlier, been able to build more quickly, an inclusive culture. All the advantages of having more diverse voices, all of our efforts there, I think it’s served us very well. We’ve got a ways to go, but I think we’ve made great strides and the future is looking very strong. I’m very confident that future leadership—incoming president Austan Goolsbee, First Vice President Ellen Bromagen, and everybody—will do a very good job there.