Two regional Federal Reserve presidents said the central bank should consider more policy action to stimulate the economy while seeking to avert a debilitating, broad-based decline in prices.
Chicago Fed President Charles Evans, speaking at a Boston Fed conference yesterday, advocated targeting a path for the price level as a way to stop the inflation rate from falling. He said the US economy is in a liquidity trap and more accommodation is not a “close call.” Boston’s Eric Rosengren said “insuring against the risk of deflation may be much cheaper than” trying to eradicate it after it takes hold.
Fed Chairman Ben S Bernanke and the Federal Open Market Committee are considering strategies, before their November 2-3 policy meeting, to raise inflation expectations and purchase additional assets to help reduce unemployment persisting at more than 9 percent. Bernanke said in a speech opening the conference that there appears to be a “case for further action.”
Evans said further action was needed because the US is caught in a “bona fide liquidity trap” where additions to the money supply fail to stimulate the economy.
