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Free AccessMNI POLICY: Evans Says Outcome-Based Guidance May Be Useful
Chicago Federal Reserve President Charles Evans said Thursday that outcome-based guidance on interest rates and QE, an idea he pushed the FOMC to adopt in the past, may be useful again soon for an economy years away from recovery.
Even if health authorities control Covid-19 and Congress overcomes "partisan politics" to deliver badly needed stimulus, pre-pandemic output won't be restored until late in 2022, Evans said in the text of a speech. Growth will slow a lot in the fourth quarter of this year, unemployment remains "horrific" at 10.2% and 2% inflation is a distant goal, he said.
"Articulating outcome-based forward guidance for the rate path and asset purchases could be beneficial in the not-too-distant future," Evans said, without laying out any specific targets. He joins the FOMC as a full voting member next year.
"The recovery is inextricably linked to the virus. Until we've made sufficient progress in controlling its spread, activity is likely to remain suppressed—indeed, sporadic outbreaks could even result in further setbacks," Evans said.
FISCAL RELIEF
The call for stronger guidance comes one day after San Francisco Fed President Mary Daly told reporters that while more guidance is possible, a flat yield curve shows markets already clearly understand the Fed intends to keep major stimulus in place for a while. Evans also said the Fed's new framework unveiled last week underlines his view that "highly accommodative monetary policy will be appropriate for some time."
Congress must deliver more fiscal relief because failing to do so "would significantly reduce household spending, further damage household balance sheets, and put many businesses at risk of failing," Evans said.
The risks extend to pressures on nonprofits and local governments that deliver vital services, Evans said, and disruptions to child care and schools are a major risk to the economy. Some local firms are already hiring extra staff to cover rising absenteeism, he said.
"Weighing the competing needs of family health, income, schooling, and child supervision, many parents may be forced to cut back on hours or quit work altogether," he said. "It will be some time before the economy recovers from the hit it took. Along the way, we face many challenges, uncertainties, and downside risks."
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.