Feb 28 The Federal Reserve's best bet for
returning the United States to full employment and 2-percent
inflation is to clearly and repeatedly state those goals and
even be willing to overshoot them to get there quickly, a top
Fed official said on Friday.
Under Fed Chairman Ben Bernanke, the Fed has used massive
bond-buying programs and a promise to keep rates low as
effective tools to provide monetary policy accommodation despite
having already slashed the main policy rate to near zero,
Chicago Fed President Charles Evans told an audience of economic
heavyweights in New York.
But with unemployment still too high and inflation
undesirably low, he said, the U.S. central bank's policy-setting
Federal Open Market Committee is still falling short on both of
"If anything, the FOMC has been less aggressive than the
policy loss function might admit," Evans said in remarks
prepared for delivery to the University of Chicago's Booth
School of Business conference on monetary policy in New York.
Being clear about policy goals and taking policy action to
achieve them is 90 percent of the Fed's communication battle, he
said. But bringing the economy back to health slowly poses risks
because of the chance of intervening policy shocks, he said.
The Fed has made it clear that an unemployment rate of about
5.5 percent and an inflation rate of about 2 percent are
indicative of a healthy economy, he said.
"The surest and quickest way to get to the objective is to
be willing to overshoot in a manageable fashion," Evans said.
"With regard to our inflation objective, we need to repeatedly
state clearly that our 2 percent objective is not a ceiling for
Evans is one of the Fed's most dovish policymakers, and
though he does not have a vote on the Fed's policy-setting panel
this year, his voice has been an influential one at the table.
Some of Evans' colleagues advocate adopting rules to set
monetary policy, saying that doing so would make Fed policy more
effective because markets would know with certainty what it will
Evans criticized such an approach, saying that one
well-known rule, named after Stanford University Professor John
Taylor, failed to deliver appropriate policy prescriptions
during the Great Recession and should not be relied upon.