Fed's Clarida, more data-sensitive, still supports US rate hikes

NEW YORK (Reuters) – The Federal Reserve should be even more attentive to new economic data, as its gradual rise in interest rates brings it closer to a neutral stance, the commander said on Tuesday. second from the US central bank.

In a carefully crafted speech following another volatile market tumble, Fed Vice President Richard Clarida emphasized how difficult it is for the US central bank to determine both the rate of neutral interest and the maximum level of employment.

"This learning process (…) with the arrival of new data argues in favor of a gradual normalization of the policy because it will allow the Fed to accumulate more money." 39, information from the data on the final destination of the policy rate, "he said.

The Fed has moved into a quarterly rate hike cycle and is expected to tighten its policy next month. However, the signs of a slowdown abroad and almost two months of market volatility – including a strong sell last week – have cast a gloomy American picture, in which the economy far exceeds potential and unemployment is at its lowest since the 1960s.

Clarida, who joined the Fed in September, said the central bank should aim to support US growth and guard against a rise or fall in inflation, far from the 2% target.

"At this stage of the interest rate cycle, I think it will be particularly important to monitor a wide range of data," he told the conference of bankers and market operators. at Clearing House in New York. "The risks have become more symmetrical and less biased," he said.

The S & P 500 has fallen about 8.5% since early October, when Fed Chairman Jerome Powell put a confident tone on the economy and the need for the Fed to avoid overheating Powell, Clarida and other Fed officials have since appeared a little more cautious, showing a slowdown in Europe, Japan and China.

In September, Fed policymakers estimated that the "neutral" policy rate – which in theory would neither stimulate nor curb demand in the economy – was about 3%. According to estimates, they are also expecting the rate to rise from 2 to 2.25% to a level slightly above this level by the beginning of 2020.

But some investors and economists are now asking whether the Fed will raise rates three or more times in 2019, as planned, or end the tightening cycle in the first half.

Tuesday, Clarida gave some clues.

He said that there was "a range of views" among policy makers on neutrality and that it was "a matter of judgment". Clarida focused on inflation expectations, among other indicators, and said he expected prices to remain anchored to the target. He was watching for signs that the Fed's preferred gauge might be "just under 2%."

But overall, the fundamentals of the economy and the labor market remain "robust" with the resumption of wage growth, he said, predicts that growth will continue at least during the second half of the year. next year, marking the longest expansion ever recorded in the United States.