- ORIGINAL NEWS
Former Fed Vice Chair Clarida sees possibility of fewer rate cuts than expected this year
- SUMMARY
The former Vice Chairman of the Federal Reserve, Richard Clarida, warns that stubbornly high inflation may hinder the Fed’s plans to ease interest rates this year.
Clarida believes that the Fed should closely monitor “sticky prices,” which are resistant to downturns and can prolong inflation.
He cautions that if the Fed were solely focused on the Consumer Price Index (CPI), it would not even consider rate cuts.
Data from February shows the CPI at 3.2% for headline and 3.8% for core, exceeding the Fed’s 2% target.
Another concern raised by Clarida is the recent easing of financial conditions, which contradicts Chair Jerome Powell’s assessment that conditions remain tight.
Clarida suggests that a relaxation of financial conditions could paradoxically improve the economic outlook, making it harder to bring inflation down to the Fed’s goal.
Despite the possibility of at least one rate cut this year, Clarida emphasizes the need for a data-dependent approach.
Mixed inflation signals and persistent sticky inflation may require a more cautious stance from the Fed.
Clarida advises that policymakers should not rush into rate cuts if inflation remains stubbornly high.
He stresses that the Fed’s primary objective is to bring inflation back to its target level, and it should not prioritize short-term economic growth over price stability.
- NEWS SENTIMENT CHECK
- Overall sentiment:
negative
Positive
” At its meeting earlier this week, the rate-setting Federal Open Market Committee indicated it would likely decrease rates three times this year, assuming quarter percentage point intervals.”
“Chair Jerome Powell said receding inflation and a strong economy give policymakers room to cut.”
Negative
“Stubbornly high inflation could push the Federal Reserve into a more cautious stance this year regarding interest rate cuts, the central bank’s former vice chair said Friday.”
“Markets also are expecting three cuts this year, though that pricing has been scaled back after data to start the year showed inflation higher than expected.”