Fed's Evans: Bold Action 'Essential' for Economy

Published September 26, 2012

| Reuters

Chicago Federal Reserve Bank President Charles Evans on Tuesday reiterated his support for the U.S. central bank's bold new push to lower borrowing costs and boost the so far "disappointing'' recovery, and said the Fed should do even more.

"This was the time to act,'' Evans said in remarks prepared for delivery to the Lakeshore Chamber of Commerce Business Expo in the industrial Chicago suburb of Hammond, Ind. "With the problems we face and the potential dangers lying ahead, it is essential to do as much as we can now to bolster the resiliency and vibrancy of the economy.''

Evans' prepared remarks were the same he gave on Sept 18, less than a week after the Fed decided to embark on a third round of asset buying and said it would not let up until the outlook for the labor market had improved substantially. 

The central bank also said it would keep short-term interest rates near zero until at least mid-2015, even after policymakers expect it to show signs of strength.

To boost the impact of its actions, the Fed should explicitly say that it will be just as tolerant of inflation running slightly above its 2% goal as it is about inflation running slightly below, Evans said.

U.S. core inflation has run below 2% since 2008. Unemployment, at 8.1%, is well above the 5.5% to 6% that many economists believe is normal for the economy in the long run.

"We should not be resistant to policies that could move the unemployment rate closer its longer-run level, but run the risk of inflation running only a few tenths above our 2% goal,'' he said. "Such accommodative polices could further improve the employment picture, even beyond our recent highly beneficial actions.''

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