A national economic expert said Thursday in a visit to Ann Arbor that the Federal Reserve is more focused on continuing policies aimed at helping the economy emerge from the recession, rather than finding exit strategies for those policies.

“We have to think about exit policies, but at the moment that’s not our first order of concern,” said Charles L. Evans, president and CEO of the Federal Reserve Bank of Chicago and a member of the Federal Open Market Committee. “At the moment, it’s policy accommodation.”

Evans was speaking at a panel discussion on macroeconomic policy at the University of Michigan’s Gerald R. Ford School of Public Policy. The panel consisted of Evans, Peter Borish, the founder of Computer Trading Corp. hedge fund; U-M professor Matthew Shapiro; and Allen Sinai, co-founder of Decision Economics, a financial market information firm. 

There was some agreement among the panel that the federal stimulus plan and the Federal Reserve’s decision to keep interest rates low have prevented an even-worse recession.

Speaking after the session, Allen Sinai said Michigan should invest in education and job training in order to exit from its own economic troubles more quickly.

“The state has to change the composition of its businesses,” he said. “It’s being forced to’”

More tax incentives for high tech companies would also help the state, Sinai added, even if it meant increasing state spending in the short term.

That’s the same prescription some panelists had for the country as a whole - worry less about inflation and short-term inflation, and more about job creation.

Borish said the federal stimulus spending essentially avoided an economic catastrophe.

“There is zero credit for a disaster averted in the political system,” he said. “We don’t know where we would have been if we didn’t spend that money. But we would have been a lot worse off.”

Shapiro said the threat of inflation is minimal, so the Federal Reserve is able to keep interest rates extremely low for a long period of time. But that could cause problems down the road if banks feel the need to boost their incomes, he warned.

“That’s a good position to be in,” he said. “But it does create some risks … keeping interest rates low for a long period has adverse side effects. Bankers get creative.”

The expectations of low interest rates, he explained, helped make the proliferation of sub-prime mortgages possible by reducing the likelihood that adjustable rate mortgages would pop up to higher payment levels.

He said the low interest rates may need to be reconsidered in the summer of 2010 or 2011 if the economy becomes “frothy again because of the expectations of zero interest rates.” One solution, Shapiro said, is to impose stricter scrutiny of financial organizations.

“It’s very important the micro and macro go hand in hand in this recovery,” he said.

While the consensus among the panelists was that the economy is in recovery, none were particularly optimistic about the prospects of significant job creation anytime soon. A national unemployment rate topping 10 percent was generally expected.

Sinai called joblessness “Public Enemy No. 1,” and predicted it would be the top political issue in America for the near future. He predicted a jobless recovery.

“The new normal for the economy is not going to be anywhere near where it was in the past. The economy is doomed to a slow growth rate. Businesses are not in the mood to hire because they don’t see demand.”

Borish said a possible policy solution is to make it financially easier for companies to hire, whether that means tax breaks or some relief from health care costs.

“We have to change incentives to make it better to hire workers rather than replace them with technology,” he said.

He compared the current economy to the eye of a hurricane.

“The weather looks great and everybody’s happy, but when the plane hit’s the other side, it’s not going to be pretty,” he said.

Evans, when asked about what Michigan can do to speed up its escape from the recession, said “That's really hard.”

“Every government entity is going to have to be very careful in their planning,” he said.

Freelance reporter Dan Meisler can be reached at danmeisler@gmail.com.