WASHINGTON: US Federal Reserve officials on Monday turned their focus towards a debate over interest rate policy that is likely to intensify in coming months, with one top official saying the conditions for a rate hike could be met next year with job growth expected to continue and inflation already pushing beyond comfortable levels.
Fed Vice Chair Richard Clarida said that while the Fed remains “a ways away from considering raising interest rates,” if his current outlook for the economy proves correct then the “necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022.”
His remarks come as the Fed shifts attention towards a possible clash between its hope to drive jobs as high as possible, and its concern that inflation is already running too fast.
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Inflation to date already presents “much more than a ‘moderate’ overshoot of our 2% longer-run inflation objective, and I would not consider a repeat performance next year a policy success,” Clarida said.
He said economic growth should drive the unemployment rate to 3.8% by the end of next year, and “eliminate the 4.2 million ‘employment gap’ relative to” the months before the pandemic.
At that point an interest rate path similar to the one laid out by Fed officials in September would “be entirely consistent” with the Fed’s new framework for hitting its 2% inflation target and reaching “maximum employment,” Clarida said in remarks prepared for presentation at the Brookings Institution.
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