Clarida Says Fed May Decide Soon on Timing of Asset-Runoff End

(Bloomberg) -- Federal Reserve Vice Chairman Richard Clarida said the central bank could soon decide when and how quickly to stop shrinking its balance sheet.

The Fed can make important decisions “in coming meetings,” including when to stop shrinking the balance sheet and "the pace at which to do that,” Clarida said in an interview broadcast Wednesday on CNN International.

Just before the interview aired, minutes of the Fed’s January meeting showed that officials widely favored announcing a plan before long to end the asset runoff later this year. Policy makers last month opted to stick with a policy framework that includes maintaining ample bank reserves -- suggesting that their balance sheet will remain larger than it otherwise might have been.

Asked whether he thought the runoff should stop soon, he pointed to market estimates.

“There are a number of estimates by outside observers that to run an ample reserve system will require reserves somewhere in the $1 trillion to $1.2 trillion with a buffer,” he said. “Under the current pace of normalization, we would get to that level sometime later this year, early next year.”

Clarida also said the central bank can afford to be patient as it waits for economic data to clarify where the global economy is headed.

“We can afford without any presumption about timing to look at the data come in and tell us what the next adjustment in policy might be,” Clarida said. Asked if the Fed would hike once this year, he said “there’s certainly scenarios where that would be appropriate, there are other scenarios where we might not hike at all. Really it’s going to depend on how the data comes in.”

Fed officials expressed uncertainty over whether they would raise interest rates again in 2019, the meeting minutes showed earlier Wednesday. Those meeting notes elaborated on the dovish message delivered three weeks ago when the FOMC said it will be “patient,” signaling it had put interest-rate hikes on hold.

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