Federal Reserve Vice Chair Richard Clarida said the Fed needs to rely on data since rates are now in the “vicinity” of neutral.
In September, the Fed estimated the neutral policy rate as between 2.5% and 3.5%, he said in an interview on CNBC Friday morning, “the policy rate is below that but we’re getting close to the vicinity.”
Currently the fed funds rate target is 2% to 2.25%.
“We need to be especially data dependent,” he added, noting that when the Fed starting raising interest rates about three years ago, the main reason was to get rates away from zero lower bound. But now, “by some estimates we’re close to neutral so data dependence makes sense.”
While he would not commit on restrictive rates, Clarida said, “being at neutral makes sense.”
When asked about the possibility of a soft landing, he pointed to the 1994-1995 tightening cycle, which was the only time Fed rate hikes didn’t trigger a downturn in gross domestic product, to show it is possible.
Clarida said he doesn’t see a big pickup in inflation or inflation expectations, and doesn’t see a big drop off either.
The labor market has room to grow, he said. There has been no “clear signal” from the equities markets regarding the economy as yet. The hiking cycle has been “very gradual,” he said, and “the policy rate is barely above the rate of inflation.”
Calrida noted, “The economy is growing at a pace we haven’t seen in a decade.”
