Fed's Clarida Says Officials Must Closely Watch Global Risks

(Bloomberg) -- Federal Reserve Vice Chairman Richard Clarida said looming international economic risks would help keep the central bank on hold as officials try to assess what they mean for the U.S. economic outlook.

“U.S. policymakers can hardly ignore these risks,” Clarida said in the text of a speech he’s set to deliver Thursday in Paris. “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.”

Fed officials have pointed to slowing global growth, especially in China and Europe, as they pulled back from earlier projections calling for interest-rate increases in 2019. After their most recent meeting they slashed forecasts to signal no hikes. Fed Chairman Jerome Powell further underscored the dovish message in his post-meeting press conference on March 20 when he called persistent below-target inflation “one of the major challenges of our time.’’

Clarida focused on global concerns at a symposium sponsored by the Bank of France and the European Money and Finance Forum. He said the threats financial markets were paying attention to included “Brexit, a sharp slowdown in global growth prospects, and trade tensions.”

The Fed’s No.2 official, Clarida also gave a short history of international financial shocks in recent years to emphasize how exposed U.S. financial markets and the U.S. economy are to global events. He noted that the Fed used accommodative policy to soften the fallout on the U.S. of a eurozone slowdown from 2011 to 2013 and a slump in China in 2015 and 2016.

“The message from these recent episodes is not just about the importance of timely policy adjustments by the central bank,” he said. “It is also about the importance of the enhanced resilience of financial institutions that has been achieved since the global financial crisis.”

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