Clarida says Fed’s new framework is ‘an evolution’

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The Federal Reserve’s changed policy framework is “an evolution, not a revolution,” according to Vice Chair Richard Clarida.

“I think of our new flexible average inflation-targeting framework as a combination of temporary price-level targeting at the effective lower bound with flexible inflation targeting, to which TPLT reverts once the conditions to commence policy normalization articulated in our September 2020 FOMC statement have been met,” he told the Brookings Institution in a webcast Tuesday. “In this sense, our new framework indeed represents an evolution, not a revolution.”

The Federal Open Market Committee, will use all of its tools, Clarida said, “not just the federal funds rate and forward guidance, but also large-scale asset purchases” to reach its dual mandate.

The Federal Reserve’s changed policy framework is “an evolution, not a revolution,” according to Vice Chair Richard Clarida.

The FOMC discussed asset purchases at its recent meeting, as Fed Chair Jerome Powell noted after the meeting. But, Clarida added, the Fed " will continue to monitor developments and assess how our ongoing asset purchases can best support achieving our maximum-employment and price-stability objective."

Also, he noted, while the Fed will wait for inflation to reach to reach 2% on an annual basis, but will also watch unemployment.

Looking back, he said the FOMC acted properly in 2012 by not raising rates when inflation was at 2%, but the unemployment level, was above “its longer-run normal level,” he said. “I would hope — and, under our September rate guidance, expect — a future Committee would reach the same judgment under similar circumstances.”

In data released Monday, business activity in New York State grew at a slower pace in November than October, while the outlook for six months from now crept higher, the November Empire State Manufacturing Survey, released Monday by the Federal Reserve Bank of New York, suggested.

The general business conditions index slipped to 6.3 in November from 10.5 in October.

Economists surveyed by IFR Markets had expected the index would rise to 13.5.

The new orders index declined to 3.7 from 12.3, while the shipments index decreased to 6.3 from 17.8, and unfilled orders widened to negative 11.9 from negative 6.6, the Fed said.

The delivery time index slid to 0.7 from 2.0, while the inventories index narrowed to negative 8.6 from negative 14.6 in the prior survey. The prices paid index rose to 29.1 from 27.8, while the prices received index jumped to 11.3 from 5.3. The number of employees index gained to 9.4 from 7.2, while the average employee workweek index fell to 4.8 from 16.1, the Fed reported.

Looking six months into the future, the general business conditions index increased to 33.9 from 32.8 last month. The new orders index fell to 32.9 from 37.7, while the shipments index decreased to 28.2 from 29.8, and unfilled orders reversed to positive 4.6 from negative 2.0, the Fed said. The delivery time index rebounded to positive 2.6 from negative 4.0, while the inventories index climbed to 11.3 from 2.6.

The future prices paid index gained to 46.4 from 39.1, while the prices received index grew to 23.2 from 16.6. The number of employees index slipped to 22.2 from 23.2, while the average employee workweek index rose to 9.3 from 6.6, the Fed reported. The capital expenditures index increased to 17.9 from 11.9. The technology spending index grew to 17.9 from 11.9.

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Monetary policy Richard Clarida Federal Reserve FOMC Manufacturing industry Federal Reserve Bank of New York
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