EFTA00428678.pdf

From: Ike Groff <MI > Subject: (BN) Fed's Evans Calls for Stimulus to Reduce Unemployment to 7.5% Date: Wed, 07 Sep 2011 15:19:12 +0000 Fed's Evans Calls for Stimulus to Reduce Unemployment to 7.5% 2011-09-07 15:15:00.22 GMT By Vivien Lou Chen Sept. 7 (Bloomberg) -- Federal Reserve Bank of Chicago President Charles Evans called for more stimulus to reduce a 9.1 percent jobless rate, including a commitment to keep interest rates low until unemployment falls to around 7.5 percent while holding medium-term inflation below 3 percent. "Given how truly badly we are doing in meeting our employment mandate, I argue that the Fed should seriously consider actions that would add very significant amounts of policy accommodation," Evans, 53, said in the text of a speech today in London. "Such further policy accommodation does increase the risk that inflation could rise temporarily above our long- term goal of 2 percent." The speech places the Chicago Fed president among the "few" members of the Federal Open Market Committee who, according to minutes of the FOMC's gathering in August, favor a "more substantial move" beyond the central bank's pledge to hold rates at record lows for about two years. Evans, among the FOMC's most outspoken advocates of easing since last year, voted for the FOMC's Aug. 9 commitment to keep the overnight lending rate between banks near zero through at least mid-2013. His support for a new trigger to be added to the central bank's statement goes beyond the easing publicly supported by most Fed officials, and is an acknowledgment of the weakness of the world's largest economy almost a year after the Fed committed to a second round of bond purchases to spur growth. `Enormous Risks' "I'm sure everyone will agree that we seriously don't want to be in this position again at this time next year," the regional bank chief said at the European Economics and Financial Centre's Distinguished Speaker Seminar. One challenge "is to take actions that respect both the feasibility of what monetary policy can accomplish and the enormous risks to the future prospects of the U.S. economy." The economic "outlook has weakened substantially," Evans said. Data released since last week show the U.S. unemployment rate remained stuck at 9.1 percent last month and payrolls unexpected failed to grow, while confidence among consumers plunged to the lowest level in more than two years. Unemployment has remained at around 9 percent or higher since April 2009. Policy makers are weighing whether further stimulus is needed to boost an economy that grew at a 1 percent annual rate in the second quarter. They debated ways to invigorate the recovery and hiring at their Aug. 9 meeting, potentially laying the groundwork for action at their next gathering later this month. Increase Demand "Monetary policy should be used more aggressively to increase aggregate demand," said Evans, one of only two regional Fed presidents who vote on the FOMC every other year, along with Cleveland's Sandra Pianalto. The central bank could add in its statement a new trigger that would keep the benchmark U.S. interest rate at "extraordinarily low levels" until unemployment falls to 7.5 percent or 7 percent, so long as medium-term inflation stays below 3 percent, Evans said. While adding "significant amounts" of further policy accommodation risks temporarily pushing inflation above the Fed's long-term goal of 2 percent, Evans said, "I do not see our EFTA00428678 2 percent goal as a cap on inflation." "Rather, it is a goal for the average rate of inflation over some period of time," said the regional chief, who became head of the Chicago Fed in September 2007. For Related News and Information: Top Stories: TOP <GO> Federal Reserve links: FED <GO> Credit crunch page: WWCC <GO> Fed balance-sheet figures: ALLX FARW <GO> Government relief programs: GGRP <GO> Fed monetary policy: FOMC <GO> --With assistance from Fergal O'Brien and Svenja O'Donnell in London. Editors: James Tyson, Christopher Wellisz To contact the reporter on this story: Vivien Lou Chen in San Francisco at • To contact the editor responsible for this story: Christopher Wellisz in Washington at or or This e-mail and any files transmitted with it are confidential and intended only for the person or entity to which it is addressed. If you are not the intended recipient, you are hereby notified that any dissemination, distribution or copying of this e-mail and any attachment(s) is strictly prohibited. If you have received this e-mail in error please immediately notify the sender at or by replying to this e-mail and delete the e- mail and any attachment(s) from your system. Nothing herein shall be construed as a financial promotion to any person or persons, or a solicitation or recommendation to buy or sell any security or other investment or to engage in any trading strategy. 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