Financial Stability News

Flashing news about financial stability and central banking

Chicago Evans wants a higher inflation target

In a speech yesterday President of Chicago Fed Charles Evans noted that the economic situation is bad and not getting any better. Given the dual mandate of the Fed, this calls for more accommodation. He points to the Taylor rule implying a negative interest rate of 3,75 % right now, and notes that an unemployment rate of close to 10 % cannot be tolerated. Suggesting that the Fed should have a more symmetrical approach to its dual mandate, he suggest a (temporary) increase in the (informal) inflation target from 2 to 3 %. Not much, but a clear recognition that the Fed should be more supportive of the weak recovery. Interestingly, in the same speech he also refer to Milton Friedman as an advocate of  monetary stimulus, given in the context of the Japanese crisis in 1998, see his WSJ article here.

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