Matthew C Klein, Columnist

Fed Doves Need to Think Big

The Federal Reserve Bank of Chicagoâs Charles Evans makes a case for loose money that only works if you assume that instability has been expunged from the financial system.

October 22, 2013 at 5:23 PM UTC

By Matthew C Klein

Matthew C. Klein writes for Bloomberg View about the economy and financial markets. He previously wrote for the Economist magazine and its economics blog, Free Exchange. Before that, Klein was a research associate at the Council on Foreign Relations, where he spent more than two years studying the history of the Federal Reserve and the intellectual history of monetary economics for an upcoming book by Sebastian Mallaby. He also worked at Bridgewater Associates, where he studied the economies of Central and Eastern Europe and advised institutional investors on asset-liability management. Klein has a bachelor's degree in history from Yale University. Originally from Chicago, he lives in New York.

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After weeks of delay thanks to the federal government shutdown, the U.S. Bureau of Labor Statistics released the lackluster September jobs report this morning. Economists at the Federal Reserve Bank of Chicago think that we won't return to full employment until sometime in 2018 if jobs growth remains at the pace set since the start of 2011 -- and that's after making generous assumptions about aging, birthrates and immigration. One possible solution: financial reform.

Some people think that growth could be improved if the Federal Reserve just pushed harder on its magic lever that controls the economy. Others, such as Fed Governor Jeremy Stein, worry that central banks trying to revive weak economies face a much more complex set of tradeoffsthan suggested by standard models, which only look at consumer prices and joblessness. Monetary stimulus may juice growth in the short term but at the risk of a future crisis as bad as what we recently experienced.