**MNI POLICY: Clarida Says Fed Can Afford to Wait on Rates

By Jean Yung

     **WASHINGTON (MNI) - The Federal Reserve can afford to be patient on its

next policy adjustment in light of muted inflation and low unemployment, Vice

Chair Rich Clarida said Friday. 

     "With the economy operating at or very close to the Fed's dual mandate

objectives and with the policy rate in the range of FOMC participants' estimates

of neutral, we can, I believe, afford to be data dependent ... as we assess

what, if any, further adjustments in our policy stance might be required to

maintain our dual-mandate objectives of maximum employment and price stability,"

he said in a speech prepared for a Hoover Institution conference at Stanford

University. 

     The U.S. economy is in a "very good place," he added. Unemployment is near

a 50-year low, real wages are rising in line with productivity, inflationary

pressures are muted, and expected inflation is stable, he said.  

     The Fed can't ignore persistent shifts in financial market conditions but

must also separate signal from noise. "Straight readings" of futures and swaps

prices assume a zero risk premium, so they must be compared to survey-based

measurements. Similarly, the Treasury yield curve reflects not only expectations

of the path of short-term interest rates, but also liquidity and term premium

factors that must be taken into account, Clarida said. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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