Chicago Fed President Argues for More Easing

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In a speech in Frankfurt, Germany, Chicago Federal Reserve President Charles Evans used a classical metaphor to describe his position on what Fed policy should be going forward:

I would like to see our forward guidance take a different form—one that explicitly ties liftoff in the funds rate to observable economic outcomes (You can think of this as a Ulysses-type forward guidance: We tie ourselves to the mast to avoid the siren calls of premature tightening.)

Evans also told his European audience:

I believe a greater risk today is that we buy too quickly into thinking that the equilibrium rate of unemployment has jumped 2 or 3 percentage points or that long-run inflation expectations have become so fragile that they are on the verge of spiking well above 2 percent. I just don’t see the evidence out there supporting this view.

The European Central Bank absolutely bought fight-inflation-at-all-costs argument last year when it raised interest rates, not once, but twice. Evans directed his remarks at US monetary policy, but his European audience surely did not miss the undertone.

Paul Ausick