Fed’s Evans Urges More Accommodation From U.S. to China
Federal Reserve Bank of Chicago President Charles Evans urged easier monetary policy around the world, including in China, to guard against economic shocks, broadening his call for more stimulus in the U.S.
“I don’t need to see any more data to know that I think we should have more accommodation,” Evans said to reporters today in Beijing, referring to the U.S. “I certainly would applaud anybody who takes action in order to strengthen their economies” around the world, including China, he said.
Many Fed policy makers said additional stimulus would probably be needed soon unless the U.S. economy shows signs of a durable pickup, according to minutes of their most recent meeting released yesterday. Evans, who doesn’t vote on the policy-setting Federal Open Market Committee this year, has been among the most vocal proponents of more accommodation.
“This is a time where the most vibrant economies possible would be a good defense against unanticipated negative shocks,” Evans said in a press briefing at the U.S. Embassy in Beijing.
A private survey today indicated that China’s manufacturing is weakening, adding pressure on Premier Wen Jiabao to introduce more stimulus to secure a second-half economic rebound. China cut interest rates in June and July and has lowered the reserve- requirement ratio for banks three times from November to May. Central bank Governor Zhou Xiaochuan said yesterday that more adjustments to rates and the ratio can’t be ruled out.
Stocks advanced around the world today and gold climbed to a 16-week high on speculation central banks in the U.S. and China will ease monetary policy to support growth.
Fed Chairman Ben S. Bernanke, who last month said the central bank may buy more bonds to cut borrowing costs, has an opportunity to clarify his views in an Aug. 31 speech to the Kansas City Fed’s annual symposium at Jackson Hole, Wyoming. The FOMC is scheduled to next meet on Sept. 12-13.
While U.S. employment data picked up in July and was better than anticipated, it was still “not nearly good enough,” Evans said. The economy needs to generate 300,000 to 400,000 new jobs a month “to get back to where we ought to be,” compared with 163,000 in July, he said. Last month’s rise in the jobless rate to 8.3 percent may have been “transitory,” Evans said.
A third round of asset purchases by the Fed would “provide confidence to markets that we are intending to be accommodative for quite some time,” Evans said today.
The Chicago Fed chief has repeatedly called on his colleagues to make their commitment to low interest rates more explicit, arguing that that the central bank should say it won’t raise rates until the unemployment rate falls below 7 percent or inflation rises above 3 percent.
Bernanke has said options include more asset purchases and cutting the interest rate the Fed pays on reserves banks keep with the central bank. The Fed has held its benchmark interest rate near zero since 2008 and has bought $2.3 trillion in securities.
The FOMC extended a program known as Operation Twist on June 20 that lengthens the average maturity of bonds held on the Fed’s balance sheet. On Aug. 1, the committee said it’s prepared to do more to support growth to reduce unemployment.
“There’s an awful lot of uncertainty when I talk to business people about the global economy, European situation, the fiscal-cliff risk,” Evans said. Fiscal cliff refers to higher taxes and spending cuts in the U.S. that will take effect at year-end unless Congress acts to avoid them.
Evans is visiting China to “gain a better understanding of broader economic issues” in the nation, according to the U.S. Embassy. He was scheduled to meet with officials including Liu He, vice president of the State Council’s Development Research Center, and Lian Weiliang, vice chairman of the National Development and Reform Commission.
Evans, 54, was the only member of the FOMC last year to cast a dissenting vote in favor of more accommodation. He became the president of the Chicago Fed in 2007.
To contact Bloomberg News staff for this story: Kevin Hamlin in Beijing at firstname.lastname@example.org