Chicago Fed chief calls for more economic stimulus

The Federal Reserve needs to further stimulate the economy and keep interest rates near zero until the stubbornly high unemployment rate begins to fall, according to one member of the Federal Open Market Committee. Charles Evans, president of the Federal Reserve Bank of Chicago, said the economic outlook for the country has weakened substantially the past few months with GDP growth slowing and consumer spending down. Recovery in the housing sector “is painstakingly slow” as households pare debt and adapt to the losses in wealth since the onset of the recession, he said Wednesday in a speech in London. Evans conceded additional monetary stimulus from the Fed could push inflation higher than 2%, which would appear contrary to the central bank’s dual mandate of maximum employment and stable inflation. The central bank should focus on medium-term inflation, he said, because too many variables affect short-term inflation and “there are significant lags before policy actions influence inflation. So reacting too strongly to short-run influences simply adds noise to the policy-making process.” Evans said he doesn’t regard inflation climbing higher than 2% “with horror,” as it’s a goal to average 2%. Therefore, he’s not opposed to inflation rising somewhat as a result of central bank policy changes. “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,” he said. Write to Jason Philyaw. Follow him on Twitter: @jrphilyaw