June 5 (New York) - One of the Federal Reserve’s most dovish officials called on Tuesday for even more aggressive policy easing, citing “soft” U.S. economic data since the central bank last met in April and decided to stand pat.
Charles Evans, president of the Chicago Federal Reserve Bank, speaking just days after a government report showed paltry U.S. jobs growth in May, warned that the economy could suffer long-term consequences if the Fed does not act now.
“With huge resource gaps, slow growth and low inflation, the economic circumstances warrant extremely strong accommodation,” Evans said in remarks prepared for delivery to the Money Marketeers of New York University.
“The damage intensifies the longer that unemployment remains high. Failure to act aggressively now will lower the capacity of the economy for many years to come.”
Evans, who does not have a vote this year on the Fed’s policy-setting panel, has argued repeatedly that the Fed, which has already taken unprecedented steps to help the recession-battered economy, should do more, including possibly buying more mortgage-backed securities. It’s unclear whether his fringe views will carry more weight when Fed policymakers next meet on June 19-20.
Pressure has intensified on the central bank to buy more long-term assets after the disappointing jobs growth in May, with the jobless rate rising for the first time in nearly a year, to 8.2 percent from 8.1 percent in April. In addition, employment growth was revised down in April and March, revealing a three-month swoon in the labor market.
Evans said he expects unacceptably high unemployment for some time to come, which carries the risk that skills of out-of-work Americans will deteriorate.
Repeating a familiar refrain, the policymaker argued the inflation outlook remained “well contained,” even with more policy accommodation, and that the inflation rate will likely remain near or below the Fed’s 2 percent target “over the medium term.”
“With inflation near target, relatively moderate economic growth expected for several more years, potential productive capacity at risk, and a symmetric 2 percent inflation target, we should resist the sirens’ call to prematurely raise rates or tighten our policy in any way,” Evans said.
“Instead, we should be providing more accommodation, in particular by better articulating the economic conditions under which our policy moves will be linked to the achievement of our mandated economic goals.”
Evans sits on a Fed committee meant to improve communications. He has long advocated the central bank adopt a stance in which it will not raise rates until certain conditions are met, for example unemployment falls below 7 percent or inflation rises above 3 percent.
The Fed in late 2008 slashed interest rates to near zero and has since bought $2.3 trillion in long-term securities in an unprecedented drive to spur growth and revive the economy after the worst recession in decades.
Yet the recovery, especially in jobs, has been slow and economic growth has been erratic, leading the central bank to say it expects to keep rates “exceptionally low” at least through late 2014.
Reporting by Jonathan Spicer; Editing by Leslie Adler