“We think we are providing very ample support for the economy with the combination of our guidance and the purchases which are at a very very robust pace,” Clarida told CNBC. “We think that the current constellation of policies is exactly where we want it to be.”
The surge of new coronavirus cases and hospitalizations is “clearly impacting the economy,” Clarida said, setting up for a “rough couple of months” ahead.
But the rollout of a first vaccine this week and expected approval of a second “makes me individually very optimistic about the economy as we get into 2021.”
The Fed earlier this week said it will continue its $120 billion in monthly bond purchases until there is “substantial further progress” in restoring full employment and hitting its 2% inflation target.
Policymakers also continued to signal they expect to keep rates at their current near-zero level through 2023, sticking to a vow to not to raise rates until inflation hits 2% and looks set to move above that level, and the economy has reached full employment.
That promise, based on a new framework adopted in August aimed at getting inflation expectations firmly pinned at 2%, will mean that rates will stay low even though the economy is expected to be growing at a faster-than-4% clip next year, Clarida said.
If the economy reaches those benchmarks sooner, Clarida said, the Fed would start to raise rates sooner as well.
“The path of policy will be dictated by the path of the economy,” Clarida said. “This will be a different cycle than past cycles because of our new monetary policy framework … policy is going to remain accommodative longer to give the support the economy needs to achieve our dual mandate goals on a sustained basis.”
Source: Economy - investing.com
