Wednesday, January 11, 2012

fed's Evans us economic outlook jan 11 2012

fed's Evans us economic outlook jan 11 2012 : While the U.S. economy's prospects are brightening, significant problems remains and the environment still calls for considerable central-bank support, a top Federal Reserve official said Wednesday.

"The somewhat firmer tone of recent economic data suggest some welcome traction, but the data are not strong enough, or uniform enough, to assert that momentum for growth is building," Federal Reserve Bank of Chicago President Charles Evans said. "The headwinds that we face are still substantial," he said.

Evans voted at Federal Open Market Committee meetings in 2011, and will rotate out of the roster of voters beginning with the meeting scheduled for later in the month. Over the course of last year he was arguably the central bank's most aggressive advocate for aggressive stimulus actions, believing the Fed should do all that it could to spur economic growth. He dissented at the year's final two policy meetings out of the belief that the Fed should do more than it was doing to boost activity.

Evans also carved out a notable role for advocating a new framework for monetary-policy making. He argued the Fed should pledge to keep policy very stimulative until unemployment fell to 7%--it is currently at 8.5%--or inflation went over 3%. The central bank's understood limit for price pressures is 2%. In his speech to the Rotary Club of Lake Forest and Lake Bluff, Ill., Evans again advocated for the adoption of such a framework, arguing the Fed is missing on its employment and prices mandate, in a fashion that argues for a strong monetary-policy response.

The current economic environment argues that "the degree of accommodation should be substantial," Evans said in his prepared remarks.

The central banker spoke in the wake of a wide range of economic data that show an improvement in the U.S. economy, and those numbers include better job growth relative to past months. Evans acknowledged the recent data "has been more promising" and that "employment growth, although still tepid, is showing signs of improvement."

That said, the economy is rebounding from deep weakness, the official said. He noted, "my outlook for real (gross domestic product) growth remains largely unchanged from the November forecast, and my forecast for the unemployment rate is only slightly lower." Evans also said "the outlook for inflation is likely to remain low for the foreseeable future."

Evans continued defense of his proposed strategy of potentially tolerating higher inflation--he thinks that won't happen--to get unemployment down is rooted in a balancing of the Fed's legal mandate. Evans observed "the most recent research shows that improved economic performance during a liquidity trap requires the central bank, if necessary, to allow inflation to run higher than its target over the medium term."

Evans' speech comes amid a veritable storm of central-bank commentary. Over the opening days of the year many officials have spoken. Most have acknowledged the economy's improving outlook, and a number of the officials have signaled a wait-and-see approach to policy making, given the changing landscape. Most agree Europe's government-debt crisis, as well as instability in the Middle East, remains an unpredictable threat to the U.S. economy.(source ) For the latest updates on the stock market, visit Stock Market Today
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