Monday, 27 September, 2021

Fed sees rates liftoff in 2023

WASHINGTON: The contours of debate within the US central bank over when to dial back support for the economy burst into the open on Wednesday as a key architect of the Federal Reserve’s new policy strategy said he feels the conditions for raising interest rates could be met by the end of 2022.

“Commencing policy normalisation in 2023 would, under these conditions, be entirely consistent with our new flexible average inflation targeting framework,” Federal Reserve Vice Chair Richard Clarida said in a webcast discussion hosted by the Peterson Institute for International Economics, report agencies.

Mr Clarida helped craft that framework, adopted last August, under which the Fed has pledged to keep rates at their current near-zero level until the economy reaches full employment, and inflation hits the Fed’s 2 per cent goal and is on track to moderately exceed that pace for some time.

Meanwhile, Mr Clarida added, he could “certainly” see the Fed announcing a reduction in its US$120-billion-a-month asset purchase programme later this year, given the surprising pace of the economic recovery from the coronavirus pandemic.

Three other policymakers on Wednesday also signaled their readiness to start reducing the Fed’s bond-buying programme, though their views on timing differed, as did their views on what should happen next.

One of them, Dallas Fed President Robert Kaplan, said that reducing the monthly asset purchases “soon” lays the groundwork for a more “patient approach” to raising borrowing costs.

St Louis Fed President James Bullard said tapering sooner clears the way for rate hikes next year, if needed.