(Bloomberg) — Federal Reserve Vice Chairman Richard Clarida said the U.S. central bank can be patient with interest-rate adjustments and noted that measures of inflation expectations appear anchored at the low end of the range he considers consistent with the Fed’s 2 percent goal.
“I believe we can be patient and allow the data to flow in as we determine what future adjustments to the target range for the federal funds rate may be appropriate,’’ Clarida said Thursday in the text of his remarks at the National Association for Business Economics in Washington.
The Fed’s No. 2 official cautioned that measures of inflation expectations are “at the lower end of a range that I consider to be consistent with our price-stability goal of 2 percent’’ inflation.
He also said that now that the Fed has decided on an operating strategy for setting the federal funds rate, officials can “decide on the appropriate timing and pace for concluding our balance sheet drawdown.’’ That suggests the Fed could slow the roll off of its securities as it approaches its estimate of a normalized balance sheet.
Clarida’s comments follow two days of congressional testimony by Fed Chairman Jerome Powell, who had a similar message. The economy is “healthy,’’ Powell said, and the Fed has room to pause its rate-hiking cycle to assess what he called “crosscurrents and conflicting signals.’’
“Global policy uncertainty remains elevated,’’ Clarida said. “And financial conditions have been volatile, making efforts to extract signal from noise more challenging.’’
The U.S. economy is in its 10th year of expansion, and could set a record for its length later this year. Economists expect gross domestic product to expand 2.5 percent in 2019 though the quarterly pace will gradually decelerate into 2020, according to estimates tracked by Bloomberg.
The extended period of growth has pulled more people into the work force and lowered the unemployment rate even while inflation has moved only gradually higher. By most measures, the Fed is around its mandate of maximum employment and stable prices.
Nevertheless, U.S. central bankers in January shifted away from their December intent to hike two more times in 2019, saying last month they will be “patient’’ amid rising uncertainty. They also said the approach would give them time to assess the impact of their tightening so far.
“Monetary policy at this juncture needs to be especially data dependent,’’ Clarida said.
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