Federal Reserve exec: US economy in liquidity trap

18 October 2010

Charles Evans, president of the Chicago Federal Reserve, has warned that more intervention is needed to boost the US economy.

He said that it is currently in a "bona fide liquidity trap", in which high savings rates and low interest rates are making it difficult for monetary policy to have an effect, reports the Financial Times.

Mr Evans suggested a temporary target for pricing levels should be imposed to get consumers and businesses investing and spending once again instead of saving.

"I think there are special circumstances when price-level targeting would be a helpful complement to our current and prospective strategies," he explained.

Last week, the Federal Open Market Committee said new economic stimulus measures may be needed in the near future.

It stated that rising unemployment in the US means that the Federal Reserve could soon be forced to act, with one possible course of action being the purchase of more government debt, reported BBC News.

By Gary Cooper

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