FED’s Evans Says Its ‘Imperative’ for FOMC to Escape Liquidity Trap – signals more Quantitative Easing

Federal Reserve Bank of Chicago President Charles Evans said further monetary stimulus is needed now to help the U.S. economy escape from a “liquidity trap.” “There is simply too much at stake for us to be excessively complacent while the economy is in such dire shape,” Evans said in a speech today in Muncie, Indiana. “It is imperative to undertake action now.” “The most recent data have been a little more positive but I think the challenges the economy faces over the next two years continue to be strong enough that more accommodation would be a good idea,” Evan told reporters after his speech. “After providing additional forward guidance additional asset purchases could be helpful in order to further improve that.” “At any particular time, depending on what the proposal in front of us is, if there’s a call for more accommodation I’m usually for it,” Evans said, adding that “communication is very important. I think that would be the first step.” Evans said that his proposal is “consistent” with the most recent research, “which shows that improved economic performance during a liquidity trap requires the central bank, if necessary, to allow inflation to run higher than its target for some time over the medium term.” In a liquidity trap, additions to the money supply fail to stimulate the economy. By raising inflation, the Fed can further lower real interest rates and discourage excess saving.

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