This Is the Time to Act -- Chicago Fed President Evans

In remarks this morning in Ann Arbor, Michigan, Chicago Federal Reserve President Charles Evans offered a strong endorsement of last week’s FOMC decision to begin a third round of quantitative easing. Evans’s remarks are in sharp contrast to recent comments from Richmond Fed President Jeffrey Lacker, the lone vote against the FOMC, decision, and Dallas Fed President Richard Fisher, who also opposed more easing although he does not have a vote this year.

Evans was specific:

I believe we should adopt an explicit state-contingent policy rule that commits the Fed to providing accommodation at least as long as the unemployment rate remains above 7 percent and the outlook for inflation over the medium term is under 3 percent. If our progress toward this unemployment marker falters, then we should expand our balance sheet to increase the degree of monetary support. Indeed, we took such an action last week. … [W]e should not be resistant to policies that could move the unemployment rate closer its longer-run level, but run the risk of inflation running only a few tenths above our 2 percent goal. Such accommodative polices could further improve the employment picture, even beyond our recent highly beneficial actions.

Last week’s policy decision does not match Evans’s preferred solution exactly, he supports the action “wholeheartedly.” Evans concludes:

This was the time to act. With the problems we face and the potential dangers lying ahead, it is essential to do as much as we can now to bolster the resiliency and vibrancy of the economy. … If we continue to take only modest, cautious, safe policy actions, we risk suffering a lost decade similar to that which Japan experienced in the 1990s. Underestimating the enormity of our problems and the negative forces holding back growth itself exposes the economy to other potentially more serious unintended consequences. That type of passivity is a gamble that is not worth taking.

The full text of Evans’s remarks are available here.

Paul Ausick