Reuters<\/a><\/noindex>.<\/p>\n\u201cI believe that these … necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022,\u201d Clarida said in a webcast discussion hosted by the Peterson Institute for International Economics. \u201cCommencing policy normalization in 2023 would, under these conditions, be entirely consistent with our new flexible average inflation targeting framework.\u201d<\/p>\n
Clarida said he expects some \u201cpretty healthy\u201d US job gains this fall as factors holding back labor supply dissipate.<\/p>\n
\u201cIf my baseline outlook does materialize, then I could certainly see supporting announcing a reduction in the pace of our purchases later this year,\u201d he said during a question-and-answer session, referring to the US central bank\u2019s $120 billion in monthly purchases of Treasuries and mortgage-backed securities.<\/p>\n
The benchmark 10-year Treasury yield rose after Clarida\u2019s remarks and the release of a report showing US services industry activity jumped to a record high in July.<\/p>\n
Interest rate futures in late-morning trading priced in a high likelihood of the Fed raising its benchmark overnight interest rate, currently near zero, three times by the end of 2023.<\/p>\n
In economic projections released in June, the median forecast of Fed policymakers was for two rate hikes in 2023.<\/p>\n
Inflation continues to run well above the Fed\u2019s 2% goal, but there are still 6.8 million fewer people employed than just before the onset of the coronavirus pandemic.<\/p>\n
In his remarks on Wednesday, Clarida said he expects that gap to have been filled and the Fed\u2019s full employment mandate to have been met by the end of 2022.<\/p>\n
While he said he still expects current high inflation readings to come back down, if the Fed\u2019s preferred inflation gauge comes in above 3% this year, he also said he would consider that more than a moderate overshoot of its inflation goal.<\/p>\n
He also noted the rapid spread of the Delta variant of the coronavirus is \u201cclearly\u201d a downside risk, and may be what is behind the recent and surprising drop in global government bond yields, rather than any loss in traction on inflation expectations.<\/p>\n
But, he noted, current projections for US gross domestic product growth this year \u201cwould be the most rapid return following a recession to … the trend level of real GDP in 50 years.\u201d<\/p>\n<\/p><\/div>\n
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