US central bank ready to respond to changing economy

• Monetary policy is in a "good place" -- after three rate cuts last year -- and will continue to support growth, Clarida said.
• The central bank was forced to change direction, restoring some stimulus to the economy by lowering the benchmark interest rate.
• The shift in the stance of monetary policy that we undertook in 2019 was, I believe, well timed and has been providing support to the economy and helping to keep the US outlook on track.

NEW YORK: US interest rates are in a good place for now but policymakers are ready to change direction if the economy needs it, the second in command at the Federal Reserve said Thursday.

Fed Vice Chairman Richard Clarida said he expected the strong American consumer to continue to drive the current economic expansion, now in a record 11th year.

Monetary policy is in a "good place" -- after three rate cuts last year -- and will continue to support growth, Clarida said in a speech.

But if the economic outlook changes "we will respond accordingly."

Clarida's comments before the Council on Foreign Relations echo the statements from Fed chief Jerome Powell in December following the final policy meeting of 2018.

The central bank was forced to change direction, restoring some stimulus to the economy by lowering the benchmark interest rate, after the series of nine increases begun in 2015 as the US recovered from the 2008 global financial crisis.

"The shift in the stance of monetary policy that we undertook in 2019 was, I believe, well timed and has been providing support to the economy and helping to keep the US outlook on track," Clarida said in his prepared remarks.

But he stressed that policy "is not on a preset course."

"Of course, if developments emerge that, in the future, trigger a material reassessment of our outlook, we will respond accordingly."

Consumers are strong

The Fed continues to expect the economy to grow at a modest pace, with inflation below but approaching the two percent goal, even as labor markets remain strong with unemployment at a 50-year low.

Fed policymakers now say the chances of recession have fallen in recent months after a summer scare but that risks remain, according to a readout from the December meeting.

President Donald Trump has since announced a partial trade agreement with China, marking an end to escalation between the world's two largest economies and easing anxieties on markets.

Clarida also said growing wages, low unemployment, stable household finances and steady job creation should continue to drive consumer spending, a mainstay of the US economy.

"In my professional career, the consumer has never been in better shape," he said during a subsequent Q&A.

"Broadly speaking, I would reject the suggestion that just because this expansion is in year 11, it's about to end."

Central bankers in recent years have also been surprised by the persistent weakness of inflation, which has spent much of the past decade below the Fed's two percent target.

Clarida said the Fed had the tools to respond if inflation weakened even further.

"We need to be nimble and we need to be alert," he said.

He was also pressed on how the Fed is grappling with climate change, a subject on which other central banks have been more active.

Clarida said he agreed with Dallas Federal Reserve Bank President Robert Kaplan, who has called for central bankers to focus on the mounting costs from natural disasters like storms, floods, fires and droughts.

"To the extent that extreme weather events are more frequent or more extreme, that does need to be factored into the way we assess whether banks have adequate capital," said Clarida.