Fed officials outline conditions for reducing monetary support

U.S. Economic Update

Senior Fed officials have begun to outline in more detail the path for the final withdrawal of monetary policy support on the grounds that despite the return of the Covid-19 infection, the economic recovery is gaining momentum.

Richard Clarida, vice chairman of the U.S. Central Bank, laid the groundwork for the Federal Reserve to cut back its $120 billion asset purchase program and raise interest rates by 2023. This will be the first pandemic since the beginning of lowering interest rates to zero.

In a speech at an event hosted by the Peterson Institute for International Economics, Clarida said that the Fed has made “progress” to achieve the goal of full employment and 2% average inflation, and that the economy is moving towards the need to adjust the central bank’s bond purchases. plan.

His comments are consistent with those made by Federal Reserve Chairman Jay Powell after the monetary policy meeting last week. Featured The first “in-depth study” of the potential timing, pace, and composition of upcoming actions.

Boosted by booming economic growth and higher-than-expected inflation data case The more hawkish members of the Federal Reserve called for faster action to remove policy support, while the doves showed that the spread of the Delta coronavirus mutation was shocking and the labor market recovery was uneven.

In an interview with CNBC on Monday, Fed Governor Christopher Waller pushed for an accelerated timetable, urging the central bank to “act early” in “scaling down” bond purchases. He said that if the August and September employment reports show that 800,000 to 1 million new jobs were subsequently added, this may be sufficient to justify the action.

“In my opinion, this is substantial progress, and I think you can prepare to make an announcement before September,” Waller said, adding that if these improvements are not realized, the Fed may have to “delay things for a few months. “.

He said that a faster time frame is needed to ensure that the central bank is ready to raise interest rates as early as 2022.

“I’m not saying we will, but if we want, we need to have some policy space before the end of the year,” he added.

Clarida said on Wednesday that he did not support the relocation as early as 2022, and instead offered reasons for adjustment in 2023. If Economic forecast The plan presented at the June meeting has yielded results.

The median estimate by Fed officials predicts that GDP will grow by 7% this year, and the unemployment rate will drop to 4.5%, and will further drop to 3.8% and 3.5% in 2022 and 2023, respectively. The core inflation rate is expected to reach 3% and then drop to 2.1% in 2022.

As part of the new framework announced last year, the Fed stated that it needs to maximize employment and sees the inflation rate rise to 2%, and is expected to “moderately exceed 2% for a period of time” before lifting off.

“If the inflation prospects and unemployment prospects I summarized earlier are the actual results of inflation and unemployment achieved during the forecast period, then I believe that the three necessary conditions for raising the target range of the federal funds rate will have to be achieved by the end of 2022,” he Said Wednesday.

Clarida said that he is paying attention to inflation data that is much higher than expected, and pointed out that if core inflation this year “reaches or is definitely higher than” 3%, he will believe that “far more than just a’moderate’ overshoot” the Fed has been overshooting for a long time. 2% target.

“There are risks in any outlook, and I think my inflation outlook faces upside risks.” He added.

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