Fed’s Clarida backs gradual rate hikes amid an upbeat outlook
Federal Reserve Vice Chairman Richard Clarida backed further gradual increases in interest rates while delivering an upbeat assessment of the U.S. economy in his maiden speech as a monetary policymaker.
With the Fed “as near as it has been in a decade” to meeting its twin goals of full employment and price stability, and monetary policy still adding fuel to the economy, “I believe some further gradual adjustment in the policy rate range will likely be appropriate,” Clarida said in the text of a speech at the Peterson Institute for International Economics.
In contrast to earlier periods of the expansion, Clarida said “the risks that monetary policy must balance are now more symmetric and less skewed to the downside.”
He made clear that his policy prescription into 2019 would hinge around inflation.
“If strong growth and employment gains were to continue and be accompanied by stable inflation, inflation expectations, and expectations for Fed policy, that situation, to me, would argue against raising short-term interest rates by more than I currently expect,” said Clarida, without specifying his precise projection for rates.
Clarida, who made no mention of recent stock market turmoil in his prepared remarks, laid out some reasons why the U.S. economy may be on the verge of kicking into a higher gear.
He expressed some optimism over the outlook for productivity, a key component in growth that has disappointed over several years. He pointed, in particular, to rising business investment as a source of encouragement.
He also saw “scope for the job market to strengthen further without generating inflationary pressures,” noting that prime-age labor force participation remains low.
The U.S. economy is poised to record its best back-to-back quarters of growth since 2014 when third-quarter data is released Friday. Economists surveyed by Bloomberg expect a 3.3 percent annualized pace of expansion in the JulySeptember period after a 4.2 percent gain in the prior quarter.