Fed’s Evans calls for more stimulus even as economy strengthens

March 16 (Bloomberg) -- Federal Reserve Bank of Chicago President Charles Evans said the central bank should step up record monetary stimulus even as the economy shows signs of gaining traction.

“Monetary policy can and should take additional steps to facilitate a more robust economic expansion,” Evans said in the text of remarks today in Frankfurt. “Even the more optimistic forecasts see output increasing only moderately above its potential growth rates.”

Evans, one of the Fed’s most outspoken advocates for more easing, reiterated his view that the central bank should commit to hold borrowing costs low until the unemployment rate falls below 7 percent. The Federal Open Market Committee kept policy unchanged this week, noting an improved job market while maintaining that “significant downside risks” remain.

Policy makers must not “buy too quickly” into the notion that inflation expectations may soon surge or “we’ll end up following overly restrictive policies that could unnecessarily risk condemning the U.S. economy to a lost decade -- or even more,” Evans said in a speech at the International Research Forum on Monetary Policy. He doesn’t vote on the FOMC this year.

The FOMC raised its assessment of the economy in its March 13 meeting, saying the unemployment rate has “declined notably in recent months” and the U.S. will see “moderate economic growth.” The Committee repeated that economic conditions will probably require the bank to maintain near-zero rates through at least late 2014.

Jobless Benefits

Data released since the Fed meeting mostly point to a continued expansion in the world’s largest economy, with Labor Department figures yesterday showing claims for jobless benefits dropped last week to match a four-week low in the period ended March 10.

The brightening outlook and a more optimistic Fed have fueled speculation that the central bank may not begin another round of asset purchases, spurring the biggest weekly drop in eight months in Treasury 10-year notes. The Standard & Poor’s 500 Index rose 0.2 percent to 1,404.89 at 2:30 p.m. in New York. The index closed yesterday above 1,400 for the first time since 2008.

Still, the jobless rate that at 8.3 percent in February, far from the range of 5.2 percent to 6 percent that Fed officials say is consistent with maximum employment. Evans said policy makers should tie their commitment to keeping low rates until either the unemployment rate falls below 7 percent or the medium-term outlook for inflation breaches 3 percent.

“As an accountable central bank in a democratic society, the Federal Reserve has an obligation to clearly articulate what it is trying to achieve with monetary policy,” he said. “The economic thresholds I am proposing put a higher and more predictable standard on the removal of accommodation.”

Evans, who was the only member of the FOMC to dissent in favor of more stimulus in 2011, has led the Chicago Fed since September 2007. The district bank head represents a region that includes Iowa and most of Illinois, Indiana, Michigan and Wisconsin.

Bloomberg News

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