FILE PHOTO: Federal Reserve Vice Chairman Richard Clarida, boards a bus to tour South Dallas as part of a community outreach by U.S. central bankers, in Dallas, Texas, U.S., February 25, 2019. REUTERS/Ann Saphir
May 3, 2019
SAN FRANCISCO (Reuters) – The U.S. economy is in a “very good place,” with inflation expectations seemingly “stable,” giving the Federal Reserve time to look at incoming data before deciding on any further interest rate changes, Fed Vice Chair Richard Clarida said on Friday.
The economy is “operating at or very close to the Fed’s dual-mandate objectives” of maximum employment and stable inflation around 2 percent, Clarida said in prepared remarks for delivery at an economic conference here.
Clarida’s remarks were released after the U.S. government reported strong April job growth and a drop in the unemployment rate to 3.6 percent.
Though inflation is currently running below the Fed’s 2 percent target, with the most recent data estimating it at around 1.6 percent, Clarida’s description of inflation expectations as “stable” amounted to pushback against the idea the Fed should cut rates soon to bolster its efforts to increase the pace of price increases.
Inflation expectations are regarded as central to the future rate of price changes, but are also harder to change. In his recent press conference, Fed Chairman Jerome Powell described recent weak inflation data as likely “transitory,” and therefore not in need of a response.
Clarida did not use that word in his prepared remarks, but still indicated the Fed was not poised to react at this point.
“We can, I believe, afford to be data dependent,” he said in comments at the Hoover Institution at Stanford.
The bulk of his talk dealt with how the Fed should incorporate information from financial markets into its evaluation of the economy – a topic of particular interest recently with investors expecting the Fed to cut rates this year.
While the prices set on interest rate futures and swaps can provide a “reality check” for officials, Clarida said that information is also “noisy,” and needs to be supplemented with survey-based information and the “judgment” of officials.
Included in his material, for example, was a chart showing that while trading in inflation-protected securities had dipped recently, survey estimates of expected inflation were higher and changed less.
The “reality,” Clarida said, is “that the U.S. economy is in a very good place. The unemployment rate is at a 50-year low, real wages are rising in line with productivity, inflationary pressures are muted, and expected inflation is stable.”
(Reporting by Howard Schneider; Editing by Paul Simao)
