October 19, 2010 / 2:36 PM / 9 years ago

Fed's Evans-inflation target is communication tool

EVANSTON, Ill., Oct 19 (Reuters) - Targeting higher inflation is one way the U.S. Federal Reserve can communicate to markets that interest rates will stay low for a long time, a top Fed official said on Tuesday.

If the Fed were to adopt ‘price-level targeting’, “We would continue to be accommodative for not only an extended period but until those prices moved up,” Chicago Fed President Charles Evans said after a speech.

Evans said the Fed could buy assets to push inflation up temporarily, and doing so should help boost the economy.

“Just getting back up to 2 percent (inflation) and making up for under-runs would increase the opportunity cost of holding cash” and could spur lending, he said. “I think this could be helpful, I think we should talk about it.” (Reporting by Ann Saphir; Editing by James Dalgleish)

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