Matthew O’Brien reports in the Atlantic that one important Fed official has taken the NGDP plunge:
Chicago Federal Reserve president Charles Evans doesn’t look the part of a heretic. But in the cozy, conservative club that is central banking, he certainly qualifies. While most of his colleagues at the Fed have recently taken an even more hawkish turn, Evans remains a champion of additional monetary stimulus. And on Tuesday he took an even bigger step: He became the first sitting Fed member to endorse nominal GDP (NGDP) level targeting.
This is encouraging news, but not too surprising for Charles Evans. He previously called for the Fed keep the target federal funds rate low until unemployment fell below 7% or inflation tops 3%. NGDP level targeting is a way of doing that without unmooring long-term inflation expectations.
The Fed is still a long way off, if ever, from adopting an NGDP level target. But Evans’ endorsement of the idea is a big first step in what could be a hugely important paradigm shift. Even if there isn’t a large difference between the quasi-NGDP level target that is the Evans Rule and an actual NGDP level target, it’s a fairly radical new way of framing policy. Rather than the central bank letting the economy recover faster, it puts the onus for a faster recovery on the central bank.
I hope O’Brien is right that Charles Evans will serve as a NGDP level targeting-is-cool catalyst at the Fed. Maybe he can help Fed chairman Ben Bernanke revert back to his old academic self and take the NGDP plunge too. If that were to happen Janet Yellen would probably follow too. Throw in some NGDP-friendly recess appoints by President Obama and Scott Sumners and I can stop blogging!
P.S. In another article Matthew O’Brien reports the worst Fed news of the week: President Obama’s failure to do NGDP-friendly recess appoints to the Fed.
P.S.S. I think David Andolfatto is at least open to NGDP level targeting. If he takes the plunge then James Bullard might take the idea more seriously too.
This post originally appeared at Macro and Other Market Musings and is posted with permission.