Clarida Reinforces Message That Fed Is On Hold After ‘Solid’ Jobs Report
Clarida Reinforces Message That Fed Is On Hold After ‘Solid’ Jobs Report
(Bloomberg) --
Federal Reserve Vice Chairman Richard Clarida reinforced the central bank’s new message this week that interest rates are on hold, saying that both monetary policy and the U.S. economy are “in a good place,” though some risks remain.
“We have a favorable outlook for the economy,” Clarida said Friday in an interview with Jonathan Ferro and Tom Keene on Bloomberg Television. “We think the economy is in a good place, we think monetary policy is in a good place.”
He repeated that message in a lunchtime speech at the Japan Society in New York, with Fed Vice Chairman for Supervision Randal Quarles delivering a similar signal at an event at the same time at Yale University in New Haven, Connecticut.
The vice chairs’ overlapping remarks hewed closely to what Chairman Jerome Powell said earlier this week after the Fed cut rates for a third time this year, signifying a strong consensus at least among the Board of Governors. The Fed has acted to protect a record U.S. economic expansion amid headwinds from trade uncertainty and global weakness, while the domestic economy has been holding up.
Labor Department data earlier on Friday showed U.S. payrolls rose 128,000 -- more than expected and reflecting reductions from a major strike -- after an upwardly revised 180,000 advance the prior month. The jobless rate edged up to 3.6% from a half-century low. The economy grew at an annualized 1.9% pace in the third quarter, slightly quicker than forecast.
Clarida told Bloomberg television that the 0.75 percentage-point reduction in the benchmark interest rate since July was aimed at providing “some insurance or cushion” against disinflation and fragility abroad. He said risks to the outlook remain “somewhat” tilted to the downside, though the labor market is healthy as shown by Friday’s unexpectedly resilient jobs report.
He provided more detail in his speech to the Japan Society:
- The slowdown in global growth and trade policy “appear to be headwinds for manufacturing activity and investment spending in the United States and abroad.”
- “Another source of uncertainty in the global economy has been and continues to be Brexit,” while what happens to the Chinese economy will also shape the global outlook.
- “I judge that measures of inflation expectations reside at the low end of a range I consider consistent with price stability.”
In New Haven, Quarles said “the current stance of monetary policy as likely to remain appropriate” provided the economy stays on track. He did though caution that the weakness of U.S. investment was a “particular concern because increasing investment and the capital stock are important for raising the potential capacity of the economy.”
Investors removed some of the easing for 2020 priced into interest-rate futures contracts after the upbeat jobs report but still are betting on another quarter-point cut by midyear.
Powell told reporters Wednesday that the Federal Open Market Committee would respond if there were a “material reassessment” of the economic outlook, but he did not spell out what would satisfy that condition.
Asked to define that phrase, Clarida stressed that the baseline outlook is for inflation to be around the Fed’s 2% target, a solid labor market, and for “ongoing continued growth.” He said if the FOMC saw “accumulating evidence” that it was missing on its mandate for maximum employment or stable prices, or the growth needed to sustain both goals, “we would have to factor that in.”
“We will be data dependent,” Clarida said. “Every meeting is a live meeting.”
Fed officials worried that weakness in these sectors could leak into consumer confidence and risk the overall expansion, and the 2019 cuts were described as insurance against such risks.
The pace of consumer expenditures has slowed, but it’s still positive against the background of a solid labor market. “We don’t see the consumer cracking,” Clarida said in the interview.
To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net;Matthew Boesler in New Haven, Conn. at mboesler1@bloomberg.net
To contact the editors responsible for this story: Alister Bull at abull7@bloomberg.net, Scott Lanman
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