NEW YORK – The economic recovery has proceeded at a “disappointing” pace and with the economy still far from where it needs to be, monetary polixy accommodation remains appropriate, according to Federal Reserve Bank of Chicago President and Chief Executive Officer Charles L. Evans.
“To put it bluntly, with unemployment too high and inflation too low — and both forecasted to stay that way over the next two years — we have missed on both of our policy objectives,” Evans told the Rockford Chamber of Commerce, according to prepared text of his speech, which was released by the Fed. “There is currently no policy conflict between improving the employment and inflation outcomes. This leads me to conclude that accommodative monetary policy continues to be beneficial for achieving each of these goals.”
While the Federal Open Market Committee recently raised its forecast for GDP growth to between 3.4% and 3.9% this year and between 3.7% and 4.6% in 2013, “closing the existing large resource gaps within a reasonable period of time requires a marked and sustained pickup in growth,” Evans said.
While “bright spots,” such as increased optimism among forecasters and rising household and business spending, are visible, on the downside are “weakness in the housing market, state and local budgetary concerns and still somewhat restrictive credit terms for some borrowers.”
Also,Evans said, “let’s not congratulate ourselves just yet: Even 4% is only moderately higher than the growth rate of potential output and thus represents a relatively muted recovery given the severity of the recession.”
Such growth, he said, won’t be enough to cut unemployment rapidly.
Turning to price stability, Evans said, “From my vantage point, we haven’t done well on this dimension either.” Prices are too low, as inflation has not reached the 2% level that the Fed considers consistent with its price stability mandate, and probably won’t be there until the end of 2013.
“Prices that are falling because of improvements in technology are not a concern,” Evans said. “But undershooting our overall inflation target because the economy is growing significantly below its potential is costly.”
