The economy is likely to continue to grow so that the labor market heals and inflation averages above 2% for long enough so that by the end of 2022 the U.S. central bank can begin raising interest rates early in 2023, said Federal Reserve Vice Chairman Richard Clarida on Wednesday.
He said the Fed would continue to examine tapering “in coming meetings.” The plural of the word “meeting” might be important as some Fed officials are agitating for a decision at the next meeting in late September. The central bank has adopted a new framework, saying it would aim to achieve inflation “moderately above” 2% for some time so that in the longer-run inflation would average 2%. The central bank also wants to achieve “maximum employment.”
Seven Fed officials have forecast an earlier liftoff for raising interest rates, with the first rate hike in 2022. The Fed’s so called dotplot forecast projects a majority of the 19 top officials see two interest rate hikes by the end of 2023. Core PCE was running at a 3.5% rate in June, the highest in 30 years, but Clarida said he favors a different measure — core PCE starting in February 2020 — to smooth out any base effects from the pandemic.
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