Charles Evans has urged his Federal Reserve colleagues to inject more stimulus into the economy since September. He finally broke ranks with most of them today, casting the U.S. central bank’s first dissent in favor of further easing since December 2007.
The challenge from the head of the Federal Reserve Bank of Chicago likely reflects the concerns of at least three or four other non-voting members on the Fed’s policy-setting committee, Bruce Kasman, chief economist for JPMorgan Chase & Co. in New York, said in an interview with Bloomberg Television. They believe “the Fed needs to work toward getting growth solid enough to get the unemployment rate down materially,” which may take two or three years, he said.
Evans, representing a five-state district with some of the highest U.S. jobless rates, said as recently as two weeks ago that the country faces “massive shortfalls” in output and job creation. His idea of tying the future path for interest rates to specific economic conditions has been discussed by policy makers and is “an interesting alternative,” Chairman Ben S. Bernanke said today at a press conference in Washington.
“Charlie is taking a very aggressive position and is the No. 1 advocate for the Fed being more interventionist,” said Paul Ballew, a former Fed economist and senior vice president at Nationwide Mutual Insurance Co. in Columbus, Ohio. “There’s a very healthy debate going on right now between more interventionist Fed members, such as Charlie and Fed Vice Chair Janet Yellen,” with some regional Fed presidents on the other side and Bernanke “in between.”
“I know Charlie from my Fed days and he is a bit of an unconventional thinker,” Ballew said. “He believes passionately that the current cycle is unique and requires an aggressive push from the Fed to facilitate the healing process. He is one to stick to his convictions.”
Today’s vote by Evans, 53, is in contrast to those of his colleagues -- Richard Fisher from Dallas, Charles Plosser of Philadelphia and Narayana Kocherlakota in Minneapolis -- each of whom dissented this year against Fed easing steps in August and September.
Doug Tillett, a spokesman for the Chicago Fed, declined to comment on the bank president’s vote.
Evans is the first policy maker to dissent in favor of more easing since December 2007, when Boston Fed President Eric Rosengren called for “a more aggressive policy response” than the Fed’s decision to lower the target for the benchmark U.S. interest rate by 0.25 percent to 4.25 percent.
During a Sept. 7 speech in London, Evans said the Fed “should seriously consider actions that would add very significant amounts of policy accommodation,” given how badly policy makers are missing their congressional mandate for achieving full employment.
The Fed’s current commitment to record-low interest rates should also be made contingent on pushing the unemployment rate down to around 7 percent or 7.5 percent, as long as inflation stays below 3 percent in the medium term, the Chicago president said.
His support for a new trigger to be added to the central bank’s statement went beyond the easing publicly supported by most Fed officials, and is an acknowledgment of the weakness of the world’s largest economy a year after the Fed committed to a second round of bond purchases to spur growth.
The U.S. faces “massive shortfalls” in output and job creation, and “if we sit on our hands as the economy withers relative to our mandate, then we could take a huge hit to our credibility, akin to what happened to our credibility following the devastating mistakes of the 1930s,” when the Fed kept monetary policy too restrictive during a time of weak loan demand and reluctance among lenders to take risks, Evans said in his most recent speech on Oct. 17 in Detroit.
Evans has led the Chicago Fed since September 2007 and is one of only two regional Fed presidents who vote on the FOMC every other year, along with Sandra Pianalto, president of the Federal Reserve Bank of Cleveland. A father of two, he has previously taught at the University of Chicago, University of Michigan, and University of South Carolina. The policy maker has spent the past two decades at the bank, beginning as a senior economist in 1991 and rising to research director from 2003 to 2007. His research has focused on the effects of monetary policy on the U.S. economy, inflation and financial markets.
The Chicago Fed chief represents a region that includes Iowa and most of Illinois, Indiana, Michigan and Wisconsin. Michigan and Illinois -- home to companies such as General Motors Co., Ford Motor Co., and Caterpillar Inc. -- have some of the highest jobless rates in the U.S. at 11.1 percent and 10 percent, respectively, for September. For the U.S. as a whole, the jobless rate was 9.1 percent.
“Charlie’s dissent reflects his devotion to doing more sooner to alleviate unemployment,” said Diane Swonk, chief economist for Mesirow Financial Inc. in Chicago.