Chicago Fed Chief calls for inflation levels in excess of 2%

Unfortunately for the world, there are some who maintain that the Fed's new 2% inflation mandate is not enough.  Charles Evans, president of the Chicago Fed gave a speech on Saturday in which he wholeheartedly  embraces an inflationary future above and beyond the current Fed's inflation goal. 

The fancy name is Price Targeting, and that is exactly what Mr. Evans has called for.  He is unhappy with the current economy, and his idea to fix it is to dramatically increase the money supply.  He would like to inflate the currecy to reach the price target as is if the currency had inflated by 2% per annum since 2007.  That is three years with 2%, or roughly 6%.  Since we had about 1% inflation since then, it would require an extra 3% on top of the 2% mandate. 

So yes, he would be happy with 5% inflation next year as long as we dropped back down to 2% the following year.  Good luck putting the Genie back in the bottle Mr. Evans. 

Via FT:
Charles Evans, president of the Chicago Fed, said that “in my opinion, much more policy accommodation is appropriate today” because “the US economy is best described as being in a bona fide liquidity trap”, a point where ultra-low interest rates and high savings rates conspire to make monetary policy ineffective.
Speaking in Boston on Saturday, he said the Fed should consider using a temporary target for the level of prices instead of the rate of inflation in order to drag the economy out the trap by convincing businesses and consumers to stop saving and start investing and ­spending.

Such a move would be in addition to a fresh asset purchase programme, or quantitative easing, now under consideration.

“I think there are special circumstances when price-level targeting would be a helpful complement to our current and prospective strategies,” Mr Evans said.

...In the price targeting that Mr Evans described, the Fed would promise to generate enough extra inflation to make the price level the same as if prices had risen by 2 per cent a year since December 2007, which was the peak of the last business cycle according to the National Bureau of Economic Research. As soon as the Fed reached that goal it would abandon the price level target and go back to targeting inflation of about 2 per cent a year.
And it may make you feel better that no matter how bad this guys is, there is no way to get rid of him.


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