Federal Reserve urged to act on economy

(From the ft.com) A senior member of the Federal Reserve has warned that the US economy is in a “liquidity trap” and signalled support for more action to boost the recovery. Charles Evans, president of the Chicago Fed, said that “in my opinion, much more policy accommodation is appropriate today” because “the US economy is best described as being in a bona fide liquidity trap”, a point where ultra-low interest rates and high savings rates conspire to make monetary policy ineffective.

Bernanke hints at further stimulus – Oct-15Speaking in Boston on Saturday, he said the Fed should consider using a temporary target for the level of prices instead of the rate of inflation in order to drag the economy out the trap by convincing businesses and consumers to stop saving and start investing and ­spending.

Such a move would be in addition to a fresh asset purchase program, or quantitative easing, now under consideration.

“I think there are special circumstances when price-level targeting would be a helpful complement to our current and prospective strategies,” Mr Evans said.

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