Charles Evans Responds to Criticism of the Fed

Charles Evans responded in an interview with the WSJ to criticisms levied at the Fed and quantitative easing:

–On the weaker dollar and backlash from foreign officials about U.S. monetary policy: Mr. Evans acknowledges that the dollar is affected by the Fed’s easy money policy. But he said that if the Fed is successful at spurring economic growth, that could in turn push the dollar higher. He adds that while he is paying attention to global developments and criticisms from abroad, his primary concern is the U.S. economy. “I’m focusing on the domestic economy. Other central banks have to focus on their economies.”

–On why the Fed needs to stick to its 2% inflation objective, even if that means raising inflation a little when it’s low: Bonds and loans taken out by borrowers for many years have been taken out with the expectation of about 2% inflation. If inflation is allowed to get much lower than that, as he says it is now, it will effectively raise the cost of borrowing for these individuals and firms. “An entire spectrum of debt” is premised on this level of inflation, he says. “It is our job,” he said, to provide the level of inflation the Fed has committed to in the past, not less.

–On the recent pickup in commodities prices: Mr. Evans sees the rise as something that economists call a “relative price change,” a case in which prices for one set of goods or services are rising but not others. Commodities prices are rising globally because of demand from emerging markets, he says, but the U.S. faces downward inflation pressure in other areas because the domestic economy is so weak. “U.S. monetary policy is not leading to anything unusual in commodity prices, but world-wide global demand is having a big effect on that,” he says.

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