Ovunc Kutlu
04 August 2021•Update: 04 August 2021
ANKARA
The US Federal Reserve Vice Chair Richard Clarida said Wednesday that the central bank's possible rate hikes that are expected in 2023 would be consistent with its inflation target.
"Commencing policy normalization in 2023 would, under these conditions, be entirely consistent with our new flexible average inflation targeting framework," Clarida said during a speech at the Peterson Institute for International Economics in Washington, D.C. via webcast.
He said monetary policy normalization would come "so long as inflation expectations remain well-anchored at the 2% longer-run goal."
Fed Chair Jerome Powell has repeatedly said in recent months that the central bank would allow inflation to climb above the 2% target for some time before raising rates until full employment is archived and the US economy recovers from the coronavirus pandemic.
The Federal Open Market Committee said on June 16 after the conclusion of the Fed's two-day meeting that there could be two rate hikes of 0.25% each, as early as 2023.
"While, as Chair Powell indicated last week, we are clearly a ways away from considering raising interest rates and this is certainly not something on the radar screen right now, if the outlook for inflation and outlook for unemployment I summarized earlier turn out to be the actual outcomes for inflation and unemployment realized over the forecast horizon, then I believe that these three necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022," said Clarida.
He noted that the core personal consumption expenditures (PCE) price index, the Fed’s preferred inflation indicator, is running at 2.7% through June, and added it is "projected to remain above 2% in all three years of the projection window."
The Fed's no. 2, however, did not provide clues about when the Fed would start pulling back on its $120 billion monthly asset purchase program that continues to support the American economy and markets.
"At our meeting last week, the Committee reviewed some considerations around how our asset purchases might be adjusted, including their pace and composition, once economic conditions warrant a change," he said.
