They Still Don’t Get It!

Posted By on August 31, 2011

The Fed is caught by its tail in a mouse trap. Charles Evans, president of the Chicago Federal Reserve Bank  told CNBC television the labor market, with its 9.1 percent jobless rate, looks to be in a recession.

(Reuters) – The central bank in early August discussed a range of unusual tools it could use to help the economy, with some officials pressing for bold new steps to help the economy.

Before settling on a promise to keep rates near zero at least until mid-2013, the Fed examined an array of policy options to shore up a flagging recovery, including tying the path of interest rates to either unemployment or inflation.

“Participants noted a deterioration in labor market conditions, slower household spending, a drop in consumer and business confidence and continued weakness in the housing sector,” according to minutes from the central bank’s August 9 meeting released on Tuesday.

The minutes said that the few officials who pressed for going beyond the low-rates vow the Fed offered viewed the new guidance “as a step in the direction of additional accommodation.”

The U.S. economy sputtered in the first six months of 2011, with gross domestic product expanding at less than a 1 percent annual pace. The jobless rate, meanwhile, remains stuck above 9 percent.

The latest dark sign for the economy came on Tuesday when data showed confidence among consumers plunged in August to its lowest level in more than two years.

Charles Evans, president of the Chicago Federal Reserve Bank and a noted policy dove, said he favored strong central bank accommodation “for a substantial period of time,” since the economy now looks to be moving “sideways.”

But Narayana Kocherlakota, president of the Minneapolis Federal Reserve Bank stopped well short of signaling support for further easing, showing he remains firmly on the hawkish wing of the Fed’s policy-setting panel.

Markets are primed for the Fed’s next policy meeting on September 20-21, and Evans’ comments on CNBC television on Tuesday fueled expectations that the Fed could build on its series of unprecedented moves to prop up the economy.

The remarks by the two policymakers came on the heels of Fed’s annual conference in Jackson Hole, Wyoming, where Fed Chairman Ben Bernanke on Friday stopped short of detailing further action by the central bank.

Evans told CNBC television he backs “some of the most aggressive policy actions” now being considered by the Fed, adding that the labor market, with its 9.1 percent jobless rate, looks to be in a recession.

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