By Suzanne Cosgrove

DETROIT (MNI) Oct 17 Chicago Federal Reserve President Charles
Evans Tuesday night argued in favor of additional action by the Federal
Reserve if current actions do not spark economic growth.

“The most recent revision revision in LEI” showed U.S growth “is
going to be muted,” he told reporters after a speech to Michigan
educators.

Asked by an audience member about the success of the Fed’s
“Operation Twist,” he stressed it is an important way that demonstrates
that the Fed can be additionally accommodative. But he added
that if, “If Operation Twist is not doing enough, we need to do more.”

Evans said that he could not comment on the Fed’s policy meetings,
but he added that I think inflationary pressures “are much more benign”
than some others believe. “I think monetary policy can remain
accommodative for a long time to come,” he told reporters.

Evans added that the Fed should provide as much clarity after their
policy meetings as possible, dissipating public concern about a
tightening of monetary policy and “taking some of the guesswork out”
of decipering the of the Fed’s views of economic conditions.

In his earlier prepared remarks, Evans proposed the Fed spell out
in policy statements a commitment to keeping short-term rates at zero
“until either the unemployment rate goes below 7% or the outlook for
inflation over the medium term goes above 3%.”

“Such policies should enable us to make progress toward our
mandated goals,” he said, but “if this progress is too slow, then we
should move forward with increased purchases of longer-term securities.”

He added that if while “optimal policy” would be consistent with
inflation “running above our 2% target for some time, this policy does
not abandon the 2% target for long-run inflation.”

“I see a 3% inflation threshold as a safeguard against inflation
running too high for too long and thus unhinging longer-run inflation
expectations,” Evans said.

If even that is not enough, he went on, “then we should move
forward with increased purchases of longer-term securities. We might
even consider a regime in which we reevaluate our progress toward our
policy goals and the rate of purchase of such assets at every FOMC
meeting.”

“I understand that some may find such a policy proposal to be hard
to understand, or even risky,” Evans said. “But these are not ordinary
times — we are in the aftermath of a financial crisis with massive
output gaps, with stubborn debt overhangs and high degrees of household
and business caution that are weighing on economic activity.”

** Market News International **

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