Clarida Stated The Low Unemployment Rate Alone Is Not Enough For A Rate Hike
US Federal Reserve (Fed) Vice President Richard Clarida stated that, within the framework of the Fed's new monetary policy, the low unemployment rate alone is not enough for a rate hike. Clarida spoke about the Fed's new monetary policy framework at the event organized by the Peterson Institute for International Economics (PIIE) via video conferencing.
Reminding that the economic landscape in general has changed significantly since 2012, Clarida expressed that they accepted that the monetary policy strategy should develop in various dimensions as a result. Clarida described the change in the Fed's monetary policy strategy as "an important turning point" and explained that developments in the economy and low interest rates required a new approach in monetary policy.
Reminding that the "average" inflation of 2 percent will be targeted in the new framework, Clarida reiterated that the maximum employment is determined as a broad-based and inclusive target. "My colleagues and I believe that this new framework represents a critical and robust evolution of our monetary policy strategy that will best equip the Federal Reserve to achieve our dual-mandate objectives on a sustained basis in the world in which we conduct policy today and for the foreseeable future,” Clarida said.
Commenting on the Fed's monetary policy instruments, Clarida emphasized that verbal guidance and large asset purchases continue to be effective sources to support the economy. “This change conveys our judgment that a low unemployment rate by itself, in the absence of evidence that price inflation is running or is likely to run persistently above mandate-consistent levels or pressing financial stability concerns, will not, under our new framework, be a sufficient trigger for policy action,” Clarida said.
Fed Chairman Jerome Powell announced on August 27 that the monetary policy strategy was changed and that the bank would target an "average" inflation of 2 percent.