A grim economic outlook highlights the need for the Federal Reserve to step up quantitative measures to boost growth, with official interest rates already effectively at zero, Charles Evans, president of the Chicago Fed, said on Saturday.
Evans said that based on the outlook for rising unemployment, falling industrial production and a wider output gap, economic models suggest rates should be below zero.
“If it were not constrained by zero, those models would want to push it below zero, but that’s not possible,” Evans told reporters after a panel at the American Economic Association’s meeting in San Francisco.
Quantitative easing, a way to flood the banking system with large amounts of money, “is a way to mimic below-zero rates and provide support to the economy,” he said.
The only way to have real below zero interest rates is to have inflation. Why they think that will help matters is beyond me. Part of the reason we are having all the problems that we are having now is because Greenspan cut rates so sharply in 2001.