by Bill McBride on 8/27/2012 08:50:00 AM
Monday, August 27, 2012
From Chicago Fed President Charles Evans: Some Thoughts on Global Risks and Monetary Policy
Evans concludes with an impassioned plea to do more to help reduce unemployment:
Finding a way to deliver more accommodation — whether it is monetary or fiscal — is particularly important now because delays in reducing unemployment are costly. An unusually large percentage of the unemployed have been without work for quite an extended period of time; their skills can become less current or even deteriorate, leaving affected workers with permanent scars on their lifetime earnings. And any resulting lower aggregate productivity also weighs on potential output, wages and profits for the economy as a whole. The damage intensifies the longer that unemployment remains high. Failure to act aggressively now could lower the capacity of the economy for many years to come.Evans once again proposes keeping the Fed funds rate low until unemployment falls below some target (he suggests 7%), unless inflation rises above 3%.
I have outlined some policy actions that I think can take us in the direction of a more vibrant and resilient economy. Given the risks we face, I think it is vital that we make such moves today. I don’t think we should be in a mode where we are waiting to see what the next few data releases bring. We are well past the threshold for additional action; we should take that action now.
Evans also supports open-ended QE until the economic conditions clearly improve:
I support further use of our balance sheet to provide even more monetary accommodation. ... I believe it is time to take even stronger steps, such as the purchase of more mortgage-backed securities, to increase the degree of monetary support for the recovery. As suggested recently by my colleagues Eric Rosengren and John Williams, these could be open-ended purchases, meaning that they would continue at a certain rate until there was clear evidence of improvement in economic conditions.This is not a new position for Evans, but this is an especially strong speech.
Posted by Bill McBride on 8/27/2012 08:50:00 AM