Bloomberg News/Landov New Fed Vice Chairman Richard Clarida gave his first speech Thursday to the Peterson Institute for International Economics.
The best way forward for the U.S. central bank is more interest-rate hikes, said new Federal Reserve Vice Chairman Richard Clarida, on Thursday in his first public remarks since taking office late last month.
“If the data come in as I expect, I believe that some further gradual adjustment in the federal-funds rate will be appropriate,” Clarida said in a speech prepared for delivery to the Peterson Institute for International Economics.
Clarida, who was appointed by President Donald Trump, was asked about the stinging criticism leveled by the president against Fed Chairman Jerome Powell and said it would not be a consideration for him or his colleagues.
Clarida said the Fed’s job is to “sustain a healthy and robust economy.”
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Clarida’s remarks hewed to Powell’s outlook for interest-rate policy.
Like Powell, Clarida said that the level of short-term rates is still helping to spur activity and that this is no longer necessary given that the labor market is so healthy and inflation is at the Fed’s 2% target.
Raising rates more quickly would just shorten the expansion and hiking too slowly could result in rising inflation, Clarida said—a point that Powell has made several times.
During the moderated questions, Clarida said there were no inflation alarm bells ringing at the moment.
In one small break from Powell, Clarida said he did think it was important for the Fed to try to gauge the level of short-term rates that would neither spur or dampen growth. Powell has said this rate, known as “r*” because of the way it appears in some economic formulas, isn’t a star that can guide Fed policy.
In September, the Fed raised its benchmark federal-funds rate to a range between 2% and 2.25%. The central bank also penciled in one more hike in December and then three in 2019.
Trump’s recent criticism of the Fed makes a December move more likely, according to some Fed watchers.
“If the Fed fails to hike in December, having clearly signaled their intention in the September forecasts, Chair Powell will be forever tainted,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
The only let-off would be a serious meltdown in the stock market, he said.
For his part, Clarida said he had an open mind about the future pace of rate hikes. If inflation looked like it was rising at a “material” rate, then more rate hikes might be needed. But if inflation was stable, there would be no need to move more than gradually, he said.
Investors don’t think the Fed will be able to hike four more times by the end of 2019. The yield on the 10-year Treasury note TMUBMUSD10Y, +1.16% has slipped to 3.13% from 3.23% earlier this month as stocks have swooned.
