Home Interest rate Fed’s Clarida sees interest rate take-off test satisfied by end of 2022

Fed’s Clarida sees interest rate take-off test satisfied by end of 2022

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(Bloomberg) – Federal Reserve Vice Chairman Richard Clarida has said the “conditions” to raise the US central bank’s key rate to near zero will likely be in place by the end of the year next.

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“While we are clearly a long way from considering an interest rate hike,” Clarida said in remarks prepared for delivery Monday to a monetary policy symposium hosted by the Brookings Institution in Washington, “I think these three conditions necessary to raise the target range because the fed funds rate will have been reached by the end of 2022, ”he said, referring to the labor market and inflation tests established by the Fed for take-off.

Last week, Fed officials left rates close to zero and announced they would begin cutting their massive asset purchase program later this month on a schedule that would close the process by mid-2022. They said the decision to type did not imply a direct signal on interest rate policy. Some officials, worried about high inflation, argued for flexibility to raise rates as soon as the cut ends.

Clarida said he expects inflationary pressures to subside “as the labor market and global supply chains eventually adjust and, most importantly, without exerting persistent upward pressure. on price inflation and productivity-adjusted wage gains “. US central bankers in August 2020 adopted a new approach to the central bank’s employment and price stability targets. The inflation target was reset to 2% on average, to overcome years of under-overshoot.

Fed officials declined to define the period over which they believe an average should be reached. The maximum employment target was also redefined as a “broad and inclusive target”, and officials said they would no longer prejudge the maximum employment level when developing the policy – although they did. always produce a forecast of an unemployment rate compatible with stable prices. . In September, that long-term estimate was 4%. Clarida added that the risks to inflation are on the rise and said he would not want to see another year of inflation overshoot along the 2021 lines. Inflation by the Fed’s preferred measure increased 4.4% for the 12 months ending in September, and minus food and energy, it increased 3.6%.

“Inflation so far this year is, for me, much more than a ‘moderate’ overshoot of our longer-term inflation target of 2%, and I wouldn’t consider another performance next year. as a political success, ”he said.

The strategies of central banks from Canada and Britain to the euro zone and the United States are being tested by surges in inflation as economies emerge from a pandemic slowdown.

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