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MNI BRIEF: Fed Committed to Averaging 2% Inflation- Clarida

(MNI) WASHINGTON
(MNI)

Federal Reserve Vice Chair Richard Clarida Wednesday reiterated the central bank's commitment to averaging 2% inflation, predicting interest rate normalization could be slower if survey measures of inflation expectations are low relative to pre-pandemic times.

"My desired pace of policy normalization post-liftoff to return inflation to 2 percent—as well as the projected pace of return to 2% inflation—would be somewhat slower than otherwise" if survey measures of inflation expectations such as the Fed's CIE index is, at time of liftoff, below the pre-ELB level, he said. The Fed vice chair said when calibrating the pace of policy normalization post-lift off he will be considering the average rate of PCE inflation since the new framework was adopted in August 2020.

"It will be appropriate to keep the federal funds rate in the current zero to 25 basis point target range until inflation has reached 2% (on an annual basis) and labor market conditions have reached levels consistent with the Committee's assessment of maximum employment," he said in prepared remarks. Maximum employment "means to me that when the unemployment rate is elevated relative to my SEP forecast of its long-run natural level, monetary policy should, as before, continue to be calibrated to eliminate such employment shortfalls so long as doing so does not put the price-stability mandate at risk."

MNI Washington Bureau | +1 202-371-2121 | evan.ryser@marketnews.com
MNI Washington Bureau | +1 202-371-2121 | evan.ryser@marketnews.com

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