Current economic circumstances warrant a great deal of accommodation "for some time," especially given the "substantial and serious miss" on price stability, Federal Reserve Bank of Chicago President and Chief Executive Officer Charles L. Evans said Wednesday.
"I would argue, if anything, the FOMC has been less aggressive than the policy loss function calls for," Evans told the Hyman P. Minsky Conference, according to prepared text released by the Fed. "And to me, in the current circumstances, accountability and optimal policy mean we should be maintaining a large degree of accommodation for some time. Policies that would instead place us on a slow glide path toward our targets undermine the credibility of our claim that we will do our job and meet mandated policy goals in a timely fashion. Timid policies would also increase the risk of progress being stymied along the way by adverse shocks that might hit before policy gaps are closed. The surest and quickest way to reach our objectives is to be aggressive. This means, too, that we must be willing to overshoot our targets in a manageable fashion. Such risks are optimal if the outcome of our policy actions implies smaller average deviations from our targets over the medium term. We should be willing to undertake such policies and clearly communicate our willingness to do so."
With a 2% inflation target, and total personal consumption expenditures up just 0.9% in the past year, it "is a substantial and serious miss" that "has persisted for several years."
Worse yet, "below-target inflation is a worldwide phenomenon and it is difficult to be confident that all policymakers around the world have fully taken its challenge onboard. Persistent below-target inflation is very costly, especially when it is accompanied by debt overhang, substantial resource slack, and weak growth," Evans said.
