U.S. Fed vice chair backs raising interest rates in 2023

Washington (US), August 5: U.S. Federal Reserve Vice Chair Richard Clarida said Wednesday that the central bank is likely to hit its inflation and employment goals by the end of 2022 and start raising interest rates again in 2023.
"I believe that these three necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022," Clarida said in a webcast discussion hosted by the Peterson Institute for International Economics.
Clarida explained that annualized PCE (personal consumption expenditures) inflation since the new monetary policy framework was adopted in August 2020 is projected to average 2.6 percent through the end of 2022, with "upside" risks to higher inflation.
"My inflation projections for 2022 and 2023" would also satisfy the "on track to moderately exceed 2 percent for some time" threshold specified in the Fed policy statement, he argued.
Meanwhile, the U.S. labor market will have reached maximum employment by the end of 2022 when the unemployment rate is expected to fall to 3.8 percent, according to Clarida's projections.
"Commencing policy normalization in 2023 would, under these conditions, be entirely consistent with our new flexible average inflation targeting framework," he said.
Clarida also noted that the U.S. economy is expected to continue to move toward the Fed's standard of "substantial further progress," and the central bank will provide advance notice before making any changes to its asset purchases.
"If my baseline outlook does materialize, then I can certainly see supporting announcing a reduction in the pace of our purchases later this year," he said.
The Fed has pledged to keep its benchmark interest rate unchanged at the record-low level of near zero, while continuing its asset purchase program at least at the current pace of 120 billion U.S. dollars per month until "substantial further progress" has been made on employment and inflation.
Source: Xinhua