Presidents of two Federal Reserve banks — William Dudley of the New York Fed and Charles Evans of Chicago — today came out out in favor of additional monetary stimulus to the economy, suggesting that the scales may be tipping in favor of additional quantitative easing.
In a speech at the CUNY Journalism School in New York, Dudley called our current economic situation “wholly unsatisfactory.” He said the economy is taking a long time to exit its current “soft patch” because people and businesses still need to scale down their debt burdens. With interest rates near zero, the economy’s sluggishness is all the more troublesome, he said, concluding that “Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.”
Meanwhile, Evans of the Chicago Fed said, “The size of the unemployment gap, combined with the fact that inflation has been running below the level I consider consistent with long-term price stability, suggests that it would be desirable to increase monetary policy accommodation to boost aggregate demand and achieve our dual mandate.”
Quantitative easing is the policy of buying long-dated Treasury securities to lower interest rates and boost the economy. The value of quantitative easing to the economy has been questioned, but at present there’s some indication that the Fed may go ahead and fire another bullet at a stagnant and fragile recovery.