The Federal Reserve’s decision last week to expand its balance sheet by a potentially unlimited amount until the labour market shows some “substantial” signs of improvement has been described as “stunningly aggressive” and “a dramatic step forward“.
But Charles Evans, president for the Chicago Federal Reserve, is not satisfied. The Federal Open Market Committee’s arch-dove wants more.
Mr Evans on Tuesday again called for the rest of the FOMC to explicitly target an unemployment rate of 7 per cent and medium-term inflation of 3 per cent before ending its easing policy – so long as inflation expectations remain reasonably well anchored.
Will the bulk of the FOMC’s voters back such a so-called ‘Evans rule’? For the time being, no.
But, for the most part, Mr Evans has already got what he wants. Read more
For my money the most interesting piece of Fedspeak today was some coded support for further easing from John Williams of the San Francisco Fed. Mr Williams wasn’t exactly gung ho, but his words were fairly clear.
“Right now, though, the real threat is an economy that is at risk of stalling and the prospect of many years of very high unemployment, with potentially long-run negative consequences for our economy. There are a number of potential steps the Fed could take to ease financial conditions further and move us closer to our mandated goals of maximum employment and price stability. Of course, these “treatments” won’t make our economic problems go away and their costs and benefits must be carefully balanced. But they could offer a measure of protection against further deterioration in the patient’s condition and perhaps help him get back on his feet.”
Mr Williams also set out an economic forecast that is notably grim on unemployment. He forecast 2 per cent annualised growth in the second half of 2011, but unemployment above 9 per cent at the end of this year, and most importantly, above 8.5 per cent at the end of 2012. Mr Williams also referred to ‘stall speed’ implying that he sees plenty of downside risk. You would certainly want to ease with that forecast. Read more
I wrote one of the more aggressive reports on Ben Bernanke’s speech in Jackson Hole, saying he “hinted” that the Fed will do more to support the US economy, but qualifying that by noting that he avoided the emphatic language of his 2010 speech and offered no discussion of the Fed’s easing options.
Quite a number of analysts found no such hint in the text and it would have been better – although not very practical for a Saturday newspaper – to say that he showed an easing bias.
What is interesting now is to go back and read the speech in light of subsequent FOMC-speak and the minutes of the August meeting. Read more
Charles Evans, president of the Chicago Fed, has made a very strong call for further easing in an interview with the Wall Street Journal. Mr Evans is normally seen as being one of the FOMC’s moderates so this is a strong indicator that the centre of the committee is ready to launch further QE. The following pretty much commits Mr Evans to vote for further QE in November:
“Staring at our forecast, I knew this when we first put out those projections. I knew it was going to be bad. And it is not improving. We’re pushing out the growth prospects. I just think it calls for much more than we’ve put in place. My view on accommodation at the moment is not data dependent. I think we’re there.”
He also implies that he supports a change in communication, possibly along the lines of a more explicit inflation objective:
Is quantitative easing by itself enough without a different communication strategy by the Fed?
Evans: I think that additional asset purchases would have an effect. I think it would be beneficial. I worry that that alone would not be enough to address the particular view that I have.
Charles Evans, president of the Chicago Fed, warned on weak labour market conditions in a speech today.
“Once you look past the headline numbers, however, some other labor market indicators are unusually weak,” Mr Evans said, pointing to the unusually long length of time unemployed workers are spending looking for a job. Read more