By Ann Saphir
HAMMOND, Ind., Sept 26 (Reuters) - The Federal Reserve should keep on buying assets to lower borrowing costs until U.S. employers are routinely adding 200,000 or more jobs a month, for at least two quarters, a top Fed policy maker known for his dovish views said on Wednesday.
"I think that would be a good marker - it's a threshold, it's an indication," Chicago Fed President Charles Evans told reporters after a speech in this industrial Chicago suburb. "In combination with (GDP) growth above trend, that would really reinforce and solidify the idea that we are getting substantial improvement."
The U.S. central bank earlier this month launched a new round of quantitative easing, buying $40 billion of mortgage-backed securities each month and promising not to let up until labor market had improved substantially.
It also said it would keep short-term interest rates near zero until at least mid-2015, even after the economy is expected to show signs of strength.
The Fed did not define what it meant by a substantially better jobs market, although several top policymakers have since said they would look beyond just the unemployment rate, which now stands at 8.1 percent.
Evans said he would want to see "downward momentum" in the unemployment rate to below 8 percent. But if a stronger economy entices more people back to the job search, the unemployment rate could stay flat or even go up, he said. In that context, he said, even an unemployment rate of 7.5 percent or 7.75 percent would mark an improvement.
Evans, who rotates into a voting spot on the Fed's policy-setting panel next year, was a big supporter of the latest round of easing, and on Wednesday called for the Fed to do even more.
"This was the time to act," he told the Lakeshore Chamber of Commerce Business Expo. "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."
Evans has long advocated keeping interest rates low until the unemployment rate falls to 7 percent, as long as inflation does not threaten to rise above 3 percent. On Wednesday he reiterated his view that providing such specific guideposts would boost the effectiveness of the Fed's efforts to jumpstart the economy.
To boost the impact of its actions, the Fed should explicitly say that it will be just as tolerant of inflation running slightly above its 2-percent goal as it is about inflation running slightly below, Evans said.
U.S. core inflation has run below 2 percent since 2008. Unemployment, at 8.1 percent, is well above the 5.5 percent to 6 percent that many economists believe is normal for the economy in the long run.
"We 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," he said. "Such accommodative policies could further improve the employment picture, even beyond our recent highly beneficial actions."
On Wednesday Evans also reiterated his view that the Fed will need to expand its current round of bond-buying in the new year to include Treasuries.
Operation Twist, under which the Fed buys about $45 billion in long-term Treasuries and sells a like amount of short-term ones, will expire at the end of the year. Evans said he would support adding enough new bond-buying to make up the difference.