Tags: Fed | Evans | Reason | Easing

Fed's Evans Sees 'a Lot of Reason' for More Easing

Friday, 24 August 2012 07:33 AM

The U.S. Federal Reserve should take action to bring down unemployment, including by buying more bonds, a top Federal Reserve official known for his dovish policy views said.

"There's a lot of reason to do more," Chicago Fed President Charles Evans told CNBC in Hong Kong, citing a jobless rate of 8.3 percent and growth in the United States that he expects to be just 2 percent or 2.5 percent, "if we are lucky," over the next year and a half.

The Fed has kept interest rates near zero since December 2008, and its current view, reiterated at its policy-setting meeting earlier this month, is that it will need to keep rates low until at least late 2014.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

"I would like to provide more conditionality and explicit economic markers on what that means, because at the moment it sounds like, 'we kind of expect things aren't going to be very good,'" he said.

He repeated his view, which he first outlined nearly two years ago, that the Fed should commit to keeping rates low until unemployment falls below 7 percent, only pulling back if inflation rises to 3 percent.

Other policymakers have not signed on to that view, prompting Evans to support a new round of bond purchases to push rates down.

"Since we can't seem to agree on these economic markers like I am mentioning, if we do more, that's a pretty clear signal that we are here to stay for quite some time," Evans told CNBC.

Market expectations for further monetary policy easing in the United States rose Wednesday after minutes of the Fed's most recent meeting showed many policymakers favored a new round of stimulus "fairly soon" unless the economy improved significantly.

Investors pulled back the next day after St. Louis Fed President James Bullard, seen as a policy centrist, called the minutes "stale" and suggested he would need to see further deterioration before supporting further policy action.

Evans argued that more policy action is needed now, and said the central bank was "complacent" in the spring of 2012 when the economy staged what proved to be a transitory comeback.

Promising to keep rates low until certain economic thresholds are met, even without further bond-buying, "would be very helpful for solidifying the expectations in markets — long rates would be even lower," Evans said. "I think it would find its way into corporate borrowing rates and help the economy in a very important way."

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

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Friday, 24 August 2012 07:33 AM
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