MNI POLICY: Clarida Wary of Global Risks; Fed Can Be Patient

By Jean Yung

     WASHINGTON (MNI) - Federal Reserve Vice Chairman Rich Clarida on Thursday

highlighted concerns over downside risks for the U.S. economy, including Brexit

and a "sharp slowdown" in the global economic outlook, and again called for

patience in adjusting interest rates. 

     "U.S. and other financial markets are attuned to a number of prominent

downside global risks, which include Brexit, a sharp slowdown in global growth

prospects, and trade tensions," and the FOMC "can hardly ignore these risks," he

said, in a speech. 

     "In the presence of these risks and with inflation pressures muted, we can

afford to be patient and data dependent as we assess in future meetings what

adjustments in our policy rate might be necessary." 

     In the past, "accommodative policy responses" by the Fed have helped ward

off actual contractions of U.S. activity as a result of global shocks, Clarida

said in remarks prepared for a Bank of France conference. Clarida referred to

the 2011-2013 eurozone recession and to 2015-2016, when the FOMC cited concerns

about Chinese currency devaluation and capital flight and their effect on U.S.

financial conditions as a factor "contributing to the delay in previously

anticipated policy rate increases, thereby supporting the economy," he said. 

     During both of these periods, U.S. stock markets fell and the dollar

appreciated as safe-haven flows pushed Treasury yields down and overall

financial conditions in the United States tightened, weighing on aggregate

demand. But timely policy adjustments by the Fed proved important to preventing

a more serious downturn, he said. 

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

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