Bloomberg
Federal Reserve Vice Chairman Richard Clarida is a strong supporter of the Fed’s ‘patient’ approach to interest-rate policy.
Federal Reserve Vice Chairman Richard Clarida said that a “patient” monetary policy is “especially data dependent,” meaning the central bank should wait for the “data to flow in” before determining what “future adjustments” to interest rates may be appropriate.
The Fed has to strike a balance between being “forward looking” and understanding that the models that the central bank consults “are not infallible,” Clarida said in a speech to the National Association for Business Economics.
For example, if the models were to predict a surge in inflation, “a decision for preemptive hikes before the surge is evident in the actual data would need to be balanced against the considerable cost of the model being wrong,” he said.
“Given muted inflation and stable inflation expectations, I believe we can be patient and allow the data to flow in as we determine what future adjustments to thee target range for the federal funds rate may be appropriate to strike this balance,” he said.
Clarida said he expects somewhat slower but “still-solid growth” in 2019. Measures of expected inflation are “at the lower end of a range” that he thinks is consistent with a 2% annual inflation target.
He repeated Fed Chairman Jerome Powell’s observation that there are “a number of crosscurrents” are buffeting the economy and bear watching, including slowing global growth and uncertain global economic policy.
Read: Fed chief says economic sending ‘conflicting signals’
“And financial conditions have been volatile, making efforts to extract signal from noise more challenging,” Clarida added.
