MNI:Fed's Clarida: 'Some Time' Before Tapering; Jobs Uncertain

The U.S. economy remains far from ready for higher interest rates and it would likely be "some time" before the Fed tapers QE, Federal Reserve Vice Chair Richard Clarida said Wednesday, noting his disappointment with the latest jobs report.

"Notwithstanding the recent flow of encouraging macroeconomic data, the economy remains a long way from our goals, and it is likely to take some time for substantial further progress to be achieved," he told a virtual conference of business economists.

The economy began a robust recovery in the second half of 2020 that is only expected to pick up steam this year, but the labor market recovery looks more tenuous after far fewer jobs were created in April than analysts expected, he said. The economy remains more than 8 million jobs short of its pre-pandemic level, and at the recent pace of payroll gains of roughly 500,000 per month, it would take until August 2022 to restore employment to its pre-pandemic level, Clarida noted.

"After looking at the details of Friday's disappointing employment report, the near-term outlook for the labor market appears to be more uncertain than the outlook for economic activity," he said. Imbalances in labor supply and demand will hinder the recovery and it's unclear how long they might last.

Meanwhile, inflation has recently increased and is likely to rise "somewhat further before moderating later this year," he said. Supply bottlenecks and base effects will push inflation above 2% but "these one-time increases in prices are likely to have only transitory effects on underlying inflation, and I expect inflation to return to -- or perhaps run somewhat above -- our 2% longer-run goal in 2022 and 2023."

That would be "entirely consistent" with the new average inflation targeting framework the Fed put into place last September, Calrida added.