Federal Reserve Bank of Chicago President Charles Evans said the U.S. central bank didn’t provide enough stimulus last week and called for new easing including more asset purchases to spur economic growth.
“We should be doing more accommodation than what was adopted under the Twist,” he said in Chicago today, referring to the Fed’s June 20 decision to expand its Operation Twist program extending the maturity of bonds on its balance sheet. While the move “has small effects,” Evans said, “its larger effect is that it indicates the Fed is continuing to think more accommodation is important and worthwhile.”
Faced with slower job growth and a deepening debt crisis in Europe, the Federal Open Market Committee expanded its maturity-extension program by $267 billion through the end of the year. Chairman Ben S. Bernanke said at a press conference the Fed is prepared to do more without gains in employment.
“Right off the bat, I’d be willing to do more on the basis of the current data,” Evans, 54, said to reporters at the Chicago Fed. He doesn’t vote on policy this year.
The Chicago Fed president has been among the most vocal advocates for additional easing among central bank officials. Last year he was the only member of the FOMC to dissent in favor of increasing stimulus.
Evans today reiterated his call for policy makers to commit to holding the main interest rate near zero until the unemployment rate falls below 7 percent or inflation rises above 3 percent. He said this would be his first priority, adding that “in the current environment, any amount of additional accommodation is welcome.”
Fed officials lowered their forecast for growth and employment after meeting on June 19-20, projecting a jobless rate of at least 7.5 percent by the end of 2013. The central bank is ready to do more to bolster growth and promote “sustained gains in labor market conditions,” the FOMC said.
Bernanke said after the meeting that additional asset purchases are among the steps the Fed would consider. St. Louis Fed President James Bullard said on June 22 that another round of quantitative easing would face a “pretty high hurdle.”
“I’d be willing to support more asset purchases, MBS, in order to provide more accommodation,” Evans said, referring to mortgage-backed securities. “The labor market situation has been completely unsatisfactory.”
The Fed has bought $2.3 trillion of securities in two rounds of so-called quantitative easing aimed at reducing borrowing costs, spurring economic growth and reviving the job market.
Reports since the Fed meeting have painted a mixed outlook for the economy, with the Philadelphia Fed’s manufacturing index for June tumbling to the lowest level since August. Still, orders for durable goods in May rose for the first time since February and pending home sales rebounded, data showed today.
Stocks rose today as the housing and durable goods data alleviated concerns of a weakening U.S. expansion. The Standard & Poor’s 500 Index increased 1 percent to 1,333.04 as of 12:55 p.m. in New York.
Concern over financial turmoil in Europe is weighing on the economic outlook as Cyprus this week became the fifth euro member state to request a bailout. European Union leaders are meeting in a two-day summit that begins tomorrow.
“Given the downside risks that we’re facing, if there were any substantial downside shocks that we’re hit with over the next six to 12 months, the economy’s not in the best place” to weather those shocks, Evans said. He said he expects annual economic growth of 2 percent to 2.5 percent during the next two years, compared with an earlier forecast of 2.5 percent to 3 percent growth.
Evans has been the district bank’s president since 2007. He represents a region that includes Iowa and most of Illinois, Indiana, Michigan and Wisconsin.