Aug 5, 2021 - Economy

Fed vice chair Richard Clarida talks rate hikes

Photo of Andrew Harrer

Photo: Andrew Harrer/Bloomberg via Getty Images

Federal Reserve vice chairman Richard Clarida made waves on Wednesday with his decidedly hawkish tone.

Why it matters: All eyes have been on Fed officials as they telegraph their views on the economy and monetary policy.

  • With the economy progressing, everyone wants to know when the Fed will taper its quantitative easing program and when will it start hiking interest rates.

Driving the news: In a speech on Wednesday, Clarida said the surprising pace of economic improvement could justify an interest rate hike in 2023.

  • He expects the unemployment rate will fall from 5.9% today to 3.8% by the end of 2022, which he characterized as "maximum employment."
  • Along with inflation "well-anchored" at 2%, he says the "necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022."
  • "Commencing policy normalization in 2023 would, under these conditions, be entirely consistent with our new flexible average inflation targeting framework."
  • Treasury yields jumped when Clarida made those comments.

Yes, but: Clarida's term ends on Jan. 31, 2022 — meaning he won't have a say in the ultimate decision.

But, but, but: He’s not the only Fed official who thinks 2023 is ripe for rate hikes. In June, we learned that 13 of 18 members of the Fed’s policy-setting committee expected to see at least one rate hike by the end of 2023. The forecast among the group calls for two hikes during the period.

The bottom line: Expect various Fed members to continue voicing opinions that may conflict with Fed chair Jerome Powell or official policy statements. But keep in mind that no single voice necessarily reflects the consensus.

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