WASHINGTON: The US economy is in good shape to keep expanding, but more interest rate increases will be needed to maintain that trajectory without inflation, newly-installed Federal Reserve Vice Chairman Richard Clarida said on Thursday (Oct 25).
In his first public appearance since taking the post, Clarida said that even after three rate hikes this year, the Fed's benchmark lending rate continues to provide stimulus to the economy that will need to be scaled back.
And he said the Fed will make its decisions without regard to President Donald Trump's repeated attacks on the central bank.
The political pressure "will in no way be a consideration as far as I'm concerned," Clarida said.
Trump has called the Fed's policy of gradual interest rate increases "crazy" and the "biggest threat" ahead of midterm congressional elections on Nov 6.
However, Clarida said: "We have a very clear mandate, and the data shows up every month in terms of inflation and unemployment, and our job is to sustain what is a very healthy and robust economy."
The comments were in response to questions from economist Adam Posen, a former policymaker at the Bank of England, who said Trump's criticisms are "pretty unprecedented for the last couple of decades from a US president."
'VERY, VERY SOLID'
Trump argues the boom he says is generated by his economic policies are in danger from rising interest rates, but Clarida is unabashedly upbeat about the outlook.
The "fundamentals of the economy are very, very solid," with rapid growth and a strong labor market, he said.
The Fed raised the key rate to 2.25 per cent last month, but Clarida said "even after our September decision, I believe US monetary policy remains accommodative."
"The funds rate is just now - for the first time in a decade - above the Fed's inflation objective" of two per cent, he said in his prepared speech. "I believe that some further gradual adjustment in the federal funds rate will be appropriate."
This outlook is in line with comments by Powell and the policy setting committee. Markets widely expect another rate move in December and three or four next year.
And Clarida said that even with an unemployment rate at 3.7 per cent, its lowest in nearly 50 years, and wages finally starting to move up, there remains "scope for the job market to strengthen further without generating inflationary pressures."
At the same time, unlike the period prior to the 2008 financial crisis when households financed consumption with debt, the US savings rate is now double what it was then.
Clarida said that meant households today were "well positioned to maintain or even increase consumption relative to gains in income."
That will serve as "a tailwind for the economy, not a headwind," in conjunction with lower taxes, he said.