NEW YORK: The Federal Reserve should continue gradually raising interest rates but it is "especially important" to closely monitor new economic data since U.S. monetary policy is getting close to a neutral stance, the Fed's second-in-command said on Tuesday.
In a carefully worded speech that comes on the heels of another volatile market drop, Fed Vice Chair Richard Clarida stressed how difficult it is for the U.S. central bank to determine both the neutral interest rate and the maximum level of unemployment.
"This process of learning...as new data arrive supports the case for gradual policy normalization, as it will allow the Fed to accumulate more information from the data about the ultimate destination for the policy rate," he said.
The Fed has settled into a quarterly rate-hike cycle but signs of a slowdown overseas and several weeks of slumping U.S. stocks have clouded an otherwise mostly rosy U.S. economic picture.
Clarida, who joined the Fed in September, said policy should aim to sustain U.S. growth and guard against a rise in inflation away from target. "At this stage of the interest rate cycle, I believe it will be especially important to monitor a wide range of data," he said at the Clearing House conference.
(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)