NEW YORK (Reuters) - There is a role for making more asset purchases, including in the mortgage market, if policy is not boosting the economy enough, a top U.S. Federal Reserve official said on Tuesday.
Chicago Federal Reserve Bank President Charles Evans repeated his suggestion of keeping rates low until the unemployment rate falls to 7 percent, as long as inflation stays below 3 percent. The Fed’s implicit target for inflation is 2 percent.
Evans also said that given weak growth and high unemployment projections, the central bank should firm up its guidance on how long rates will remain low, noting that his threshold proposal could be a first step.
“To the extent that we are not making adequate progress in closing that gap in the time frame that we should, then I think additional asset purchases could further firm our commitment to accommodative policy,” Evans told reporters after a speech at the Council of Foreign Relations.
“I think there is a role for purchasing MBS (mortgage-backed securities) to help further improve the mortgage market. So I would be very interested in that possibility.”
Evans said he expected rates would be lower for longer than mid-2013. The Fed recently flagged it expects to hold rates near ultra-low levels until then.
The Fed has kept rates near zero since late 2008 and has bought more than $2 trillion in long-term securities to keep borrowing costs down and spur economic recovery.
Evans also said he sees the economy growing at 2.5 percent next year and 3 percent in 2013, but not enough to substantially bring down the high unemployment rate.
Earlier this month, the Fed lowered its growth forecasts and upped its expectations for the unemployment rate, saying the pace of growth would be “frustratingly slow”. The central bank also said it was considering the possibility of additional mortgage debt purchases.
The Fed recently lowered its forecast, saying it expects the economy to grow by 2.5 percent to 2.9 percent next year.
Reporting by Daniel Bases and Leah Schnurr; Editing by Chizu Nomiyama