Federal Reserve Bank of Chicago President Charles Evans said monetary stimulus is still needed to spur the “disappointing” pace of the economic recovery.
“With unemployment too high and inflation too low -- and both forecasted to stay that way over the next two years -- we have missed on both of our policy objectives,” Evans said in a speech in Rockford, Illinois, today. “There is currently no policy conflict between improving the employment and inflation outcomes. This leads me to conclude that accommodative monetary policy continues to be beneficial for achieving each of these goals.”
The Fed is divided over whether further evidence of a strengthening recovery would warrant slowing or reducing its plan to buy $600 billion of Treasuries through June, according to the minutes of the Federal Open Market Committee’s Jan. 25-26 meeting, which were released yesterday. Evans has publicly supported the Fed’s so-called quantitative easing program.
Policy makers raised forecasts for economic growth this year, with central bankers projecting U.S. inflation-adjusted gross domestic product will rise 3.4 percent to 3.9 percent, the minutes showed. Forecasts increased from November predictions of 3 percent to 3.6 percent as household spending picked up and recent economic data showed a “stronger tenor.”
“Let’s not congratulate ourselves just yet: even 4 percent is only moderately higher than the growth rate of potential output and thus represents a relatively muted recovery given the severity of the recession,” said Evans, who votes this year on the policy-setting FOMC. “In addition, this growth forecast is not strong enough to reduce unemployment very rapidly within a reasonable timeframe.”
Bernanke, Unemployment
Fed Chairman Ben S. Bernanke said in testimony before the House budget panel last week that the unemployment rate is likely to remain high “for some time” even after its biggest two-month drop since 1958, to 9 percent in January. Joblessness rose above 9 percent in May 2009, beginning the longest period of unemployment at that level or higher since monthly records began in 1948.
“To date, job growth has been disappointing,” Evans said. “We still have a long road ahead before we return to full utilization of the economy’s productive capacity and meet this piece of our policy goals.”
The central bank is also failing to meet its goal of price stability, which is “costly” as consumers took on debt with an inflation rate of about 2 percent in mind, Evans said. “Unexpectedly low” inflation also lowers revenue for businesses, increasing the real cost of labor and making companies less likely to hire, he said.
‘Encouraging’
Evans said it’s “encouraging” that economic data has recently been “coming in stronger.” The improvement in financial-market conditions will also “provide additional support to consumer and business spending and investment,” he said.
“Tempering these positive developments are the continued weakness in the housing market, state and local budgetary concerns and still somewhat restrictive credit terms for some borrowers,” Evans said.
Talking to reporters after the speech, Evans said that he is “open-minded about the size of our current program” of buying $600 billion of Treasuries through June.
“We’re going to evaluate that, as our statement has said, at each meeting. I think it’s quite likely if we continue with the 600 it will not surprise me if at the time we get to June and we’re looking at the economy, that things are sufficiently better, that might be enough,” Evans said. “I think it’s likely we’ll do the $600 billion. I’m open minded and it will take a change in the economic outlook to change that.”
Source: http://www.bloomberg.com
“With unemployment too high and inflation too low -- and both forecasted to stay that way over the next two years -- we have missed on both of our policy objectives,” Evans said in a speech in Rockford, Illinois, today. “There is currently no policy conflict between improving the employment and inflation outcomes. This leads me to conclude that accommodative monetary policy continues to be beneficial for achieving each of these goals.”
The Fed is divided over whether further evidence of a strengthening recovery would warrant slowing or reducing its plan to buy $600 billion of Treasuries through June, according to the minutes of the Federal Open Market Committee’s Jan. 25-26 meeting, which were released yesterday. Evans has publicly supported the Fed’s so-called quantitative easing program.
Policy makers raised forecasts for economic growth this year, with central bankers projecting U.S. inflation-adjusted gross domestic product will rise 3.4 percent to 3.9 percent, the minutes showed. Forecasts increased from November predictions of 3 percent to 3.6 percent as household spending picked up and recent economic data showed a “stronger tenor.”
“Let’s not congratulate ourselves just yet: even 4 percent is only moderately higher than the growth rate of potential output and thus represents a relatively muted recovery given the severity of the recession,” said Evans, who votes this year on the policy-setting FOMC. “In addition, this growth forecast is not strong enough to reduce unemployment very rapidly within a reasonable timeframe.”
Bernanke, Unemployment
Fed Chairman Ben S. Bernanke said in testimony before the House budget panel last week that the unemployment rate is likely to remain high “for some time” even after its biggest two-month drop since 1958, to 9 percent in January. Joblessness rose above 9 percent in May 2009, beginning the longest period of unemployment at that level or higher since monthly records began in 1948.
“To date, job growth has been disappointing,” Evans said. “We still have a long road ahead before we return to full utilization of the economy’s productive capacity and meet this piece of our policy goals.”
The central bank is also failing to meet its goal of price stability, which is “costly” as consumers took on debt with an inflation rate of about 2 percent in mind, Evans said. “Unexpectedly low” inflation also lowers revenue for businesses, increasing the real cost of labor and making companies less likely to hire, he said.
‘Encouraging’
Evans said it’s “encouraging” that economic data has recently been “coming in stronger.” The improvement in financial-market conditions will also “provide additional support to consumer and business spending and investment,” he said.
“Tempering these positive developments are the continued weakness in the housing market, state and local budgetary concerns and still somewhat restrictive credit terms for some borrowers,” Evans said.
Talking to reporters after the speech, Evans said that he is “open-minded about the size of our current program” of buying $600 billion of Treasuries through June.
“We’re going to evaluate that, as our statement has said, at each meeting. I think it’s quite likely if we continue with the 600 it will not surprise me if at the time we get to June and we’re looking at the economy, that things are sufficiently better, that might be enough,” Evans said. “I think it’s likely we’ll do the $600 billion. I’m open minded and it will take a change in the economic outlook to change that.”
Source: http://www.bloomberg.com
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