Chicago Fed President Charles Evans said the central bank can use its asset purchases to provide more stimulus if the U.S. economic recovery falters.

“There is still quite a bit of flexibility in the asset purchase side right now, and it allows us flexibility to also provide more accommodation if that's necessary,” Evans told Yahoo Finance in an exclusive interview on Oct. 8.

Evans said the Fed has a number of options with its balance sheet, speculating that the Fed could change the pace of its purchases or more explicitly target purchases of longer-dated versus shorter-dated assets.

See also: Boston Fed’s Rosengren: Further QE could help economy, but not as much as fiscal policy

The Chicago Fed chief admitted that the longer-term interest rates are already “very low,” pointing to the yield on the U.S. 10-year Treasury (^TNX), which remains below 80 basis points. But Evans pointed to the “very important” signaling effect that comes with ramping up purchases.

“If things were somewhat worse, if the recovery was slower, I think we'd still be having interest rates at the zero lower bound, but I think we'd also be following it up with more asset purchases,” Evans said.

Economy would be ‘adversely affected’ by no stimulus

As gridlock in Washington threatens the odds of new fiscal stimulus, Evans entertained a slower economic recovery as a serious possibility.

On Tuesday, President Donald Trump tweeted that he was walking away from negotiations for a second round of economic help to businesses and households.

Although House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin are attempting to salvage a deal, the possibility remains of no relief package before the election.

Evans said the absence of fiscal stimulus would force him to lower his economic forecast, since his projections in the Fed’s Sept. 16 policy-setting meeting assumed $1 trillion in additional support from Capitol Hill.

“I think it makes for a much more challenging economic environment, and our outlook would undoubtedly be adversely affected,” Evans said.

Evans had penciled in GDP contracting about -3.5% in 2020 with the unemployment rate ending the year at about 7.5%, slightly more optimistic than the median member of the Federal Open Market Committee.

Evans also forecast the unemployment rate falling to 4% by the end of 2023, which he told Yahoo Finance is “around” his estimate for maximum employment and a recovered economy.

Under the Fed’s forward guidance, maximum employment would be a trigger for a rate hike if policymakers also saw inflation reach 2% — alongside indication of inflation exceeding 2% “for some time.”