Chicago Fed President Charlie Evans this morning: Monetary theory calls for more Federal Reserve accommodation now

"Inflation is always and everywhere a monetary phenomenon," Milton Friedman

Jeff Berkowitz: There is no economic theory that says this but it sounds like the Fed (and perhaps you) are saying collectively: with low inflation, this concern about tariffs and currency manipulation [by China] and so forth- there is no economic theory that tells us what to do- but we would say this may be a time to have more cushion, to move more accommodatively [to lower interest rates] than we otherwise would. There is no theory that tells you that, but it does sound like that is what you are saying here- to summarize it, right?

Charles Evans, President of the Federal Reserve Bank of Chicago: I think there is analysis if somebody told me what the path of tariffs would be- if we could kind of get a better idea of what relative price changes are like- you know, import prices, foreign prices that we face feed into the inflation data that we see- and so that would help inform our inflation outlook, and all of those things, but it does seem like there are headwinds that we are facing which are holding back inflation. I know that it is a source of frustration to a lot of people when you kind of say, technology is up- increasing competitiveness- the disruption is also having an effect- we are seeing lower prices.  And, you kind of might throw your hands up and say, "Hey, I can't get inflation up because of all these factors."

Charles Evans, Chicago Fed President: My own view is that monetary economics says that those headwinds are things that you need to offset in order to get the nominal values up and so that does call for more accommodation. That's what the theory would be indicating. So, that's the last part of what you were talking about, so I think, you know, inflation is a monetary phenomenon. That's what we [The Fed] are responsible for.  And, when it's too high, that's our problem. And, when it is too low, it's our problem. We just have to continually fight about that.


Above is the last question and answer of this morning's (August 7, 2019) press conference, at a media breakfast hosted by Chicago Federal Reserve Bank President Charles Evans at the Chicago Federal Reserve Bank in the Chicago Loop, 8:35 am to 9:42 am, content embargoed until 11:15 am (CST).

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