MNI BRIEF: Ex-Fed's Clarida - 2% Inflation Needs Softer Growth

Former Fed Vice Chair Richard Clarida said Thursday both price and wage inflation measures indicate that further macro adjustment is required for the Federal Reserve to hit its 2% inflation goal, as the central bank takes on a mantra of higher for as long as it takes.

"I am in the camp that thinks for the Fed to confidently get inflation on a trajectory and ultimately back to 2% is going to require a downshift in demand growth below potential output growth," he said in a virtual National Economists Club event. The Commerce Department reported earlier in the day the U.S. economy grew 4.9% in the third quarter, the fastest pace in nearly two years, and well above estimates of trend growth at around 2%. "I do think a downshift in demand growth is going to be required and certainly from this level a pretty significant downshift in demand growth."

"Whether or not that requires an NBER recession or not remains to be seen. But I do think obviously continued growth at this pace would be inconsistent with achieving that objective," he said, also citing some recent good news on the supply side. "If the Fed wants to keep inflation expectations anchored at 2, then at some point inflation has to fall to two." (See: MNI INTERVIEW: Fed Likely Done With Hikes Despite Hawkish Tone)