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Fed’s new Vice Chair Clarida backs rate hikes in first major speech

Clarida described the current state of policy as accommodative, even though the Federal Open Market Committee removed the word following its most recent policy meeting.

The remarks come as the Fed finds itself at the center of attention in both the financial markets and the political arena.

President Donald Trump has repeatedly criticized the central bank’s moves to raise rates. In an interview earlier this week with The Wall Street Journal, Trump repeated that monetary policy is the biggest threat to the economy, and wondered aloud whether he made the right choice in appointing Jerome Powell as Fed chairman.

Clarida also is a Trump appointee and was confirmed last month by the Senate.

In his speech, Clarida cited research, similar to that used by Powell, that shows the danger of waiting too long to raise rates. Specifically, he talked about the “neutral” rate of interest that is neither stimulative nor acommodative, and said history has shown that staying below neutral risks letting inflation run too hot.

He conceded, though, that inflationary pressures seem low now, even with a tightening labor market and rising wages. Above-trend economic growth also might not trigger worrisome inflation, Clarida said.

The economy, he added, likely has room to grow. Rising savings rates suggest that consumers have more buying power, while tax cuts have provided an incentive for business investment.

Source : CNBC

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