Fed’s No. 2 plays cards close to chest on rate cut
U. S. Federal Reser ve vice- chairman Richard Clarida left the door open to a third-straight interest-rate cut, saying the outlook for U.S. growth is favourable but the central bank will “act as appropriate” to sustain the expansion amid risks.
“The U. S. economy is in a good place, and the baseline outlook is favourable,” Clarida said Friday in a speech in Boston.
Still, there are “some evident risks,” as business fixed investment has slowed “notably” and “global growth estimates continue to be marked down.”
“Global disinflationary pressures cloud the outlook for U. S. inflation,” he said. Clarida added that the Federal Open Market Committee “will proceed on a meeting- by- meeting basis to assess the economic outlook as well as the risks to the outlook, and it will act as appropriate to sustain growth.”
Officials meet Oct. 2930 to debate the need for another quarter- percentage- point interest- rate cut and investors saw nearly certain chances that the central bank will ease again following reductions in July and September.
Clarida’s remarks — among the last by a top official before the pre- meeting blackout period starts — fit the discourse of other Fed policy- makers in recent weeks.
The overall message is that the U. S. economy is on a sound footing with labour markets holding up, inflation low and the outlook for continued but moderate growth intact. Still, policy- makers have shown concerns about the global slowdown and are watching to see if the deceleration in manufacturing and exports begins to affect the broader economy.
“I can’t think of a time when, in the aggregate, the U. S. consumer has been in better shape,” Clarida said during questioning by a moderator after his speech. When asked whether shocks from trade disputes would begin to impact consumer confidence and possibly erode growth further, Clarida said: “I don’t see any evidence right now that recession risks are elevated, and we don’t see it spilling into the consumer.”
At the same time, he said risk management is an important element of policy.
Economists surveyed by Bloomberg forecast the pace of growth will slow in the second half of 2019 to about 1.75 per cent versus around 2.5 per cent for the first two quarters.
There are signs of deceleration.
Private sector non- farm payroll growth slowed to 114,000 jobs in September with the three month average down to 119,000 per month versus 146,000 the prior three months. At the same time, real estate mar
The global economy is sort of muddling through.
kets have picked up, supported in part by the Fed’s pivot this year to lower interest rates. Household incomes are rising and that supports consumption.
“The global economy is sort of muddling through,” Clarida said in the question an answer period. “Manufacturing globally is definitely slumping.”
Clarida is leading, at Fed chairman Jerome Powell’s request, the Fed’s review of tools and strategies which is being conducted with input from labour groups, business leaders and academic economists.
“We will continue reporting on our discussions in the meeting minutes and share our conclusions when we finish the review during the first half of next year,” he said.