28 March 2012

Can This Man Save the American Economy?

Chicago Federal Reserve President Charles Evans has an ingenious plan to jump-start job creation. His Fed colleagues should listen to him.

By Matthew Yglesias  |  Posted Monday, March 26, 2012, at 11:54 AM ET

Can talking differently boost the economy? It sounds like a silly idea, but as long as the talkers have the right jobs, there’s considerable theoretical reason to believe they can make a huge difference. New research from the Federal Reserve Bank of Chicago shows that talk does matter and that the Fed could significantly improve the economy by choosing its words better.

The messenger for all this was Charles Evans, the president of the Chicago Fed, who is waging a low-profile war to revive the economy by changing how the Fed speaks. Last week, at the annual Brookings Papers on Economic Activity conference, Evans tried to make this case to an elite audience of economists and policymakers. His paper, “Macroeconomic Effects of FOMC Forward Guidance,” co-written with Chicago Fed staffers, is one of the most important policy arguments out there today, arguing that the central bank could significantly stimulate the economy simply by rephrasing its statement that “economic conditions—including low rates of resource utilization and a subdued outlook for inflation over the medium run—are likely to warrant exceptionally low levels of the federal funds rate through late 2014.”

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