By Steven K. Beckner
(MaceNews) – Federal Reserve Vice Chairman Richard Clarida said Friday that he would be open to consider accelerating the pace at which the Fed reduces its bond buying.
Clarida, responding to questions after speaking to a Federal Reserve Bank of San Francisco Asia Economic Policy Conference, pointed to a combination of strong economic growth, coupled with job gains, and rising inflation as possibly justifying a quicker pace of “tapering” of asset purchases.
Earlier, fellow Fed Board of Governors member Christopher Waller had explicitly said he favors a “faster” pace of tapering, leading to a relatively early liftoff of the federal funds rate from the zero to 25 basis point target range where it has been since March 2020.
Clarida joined with other members of the Fed’s policy-making Federal Open Market Committee on Nov. 3 to start scaling back Fed bond buying by $15 billion per month until the asset purchase program ends. The FOMC said it is prepared to adjust the pace of purchases, but Chairman Jerome Powell said tapering is likely to be wrapped up by mid-2022.
The FOMC left the funds rate near zero and said it expects it to remain there “until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.”
The FOMC also said in its Nov. 3 statement that it is “prepared to adjust the pace of purchases if
warranted by changes in the economic outlook,” and Powell said tapering could be either faster or slower depending on how economic conditions evolve.
Since then, speculation has mounted that faster tapering and earlier rate hikes will be required to contain price inflation, which rose by 6.2% in October relative to a year earlier.
Earlier, an inflation-wary Waller openly called for a “faster” pace of tapering and said, “if we double the pace in January we could be done by April.” Then, he added, “we could have a rate hike as early as the second quarter. That’s a theoretical possibility.”
Clarida did not go that far, but said the FOMC’s expressed willingness to adjust the pace of tapering should be taken seriously and proceeded to lay out reasons why that might be necessary.
Since the FOMC met in early November, Clarida noted that employment, retail sales and other data show the economy “in a very strong position.”
“There was a slowdown in the third quarter, but it looks like the fourth quartter is going to be very strong,” he said.
Meanwhile, consumer price increases have accelerated, and there is “an upside risk of inflation,” he added.
Clarida said he will continue to carefully watch data between now and the Dec. 14-15 meeting, but said “it may well be appropriate to the increase pace at which we’re reducitng our balance sheet.”
“It’s something to consider at the next meeting,” he added.
Although Clarida’s term as vice chairman is scheduled to expire September next year, his term as governor expires at the end of January, and it is not clear whether he will be reappointed.
In earlier, prepared remarks, Clarida said “international monetary policy coordination may enhance the efficiency of monetary policy execution,” but said he is “skeptical that in practice there are additional material, reliable, and robust gains that would flow from a formal regime of binding monetary policy cooperation, at least among major G-7 economies with flexible exchange rates, open capital accounts, and central bank mandates that include price stability ….”
(I)t seems that whatever gains might exist in theory, they likely do not exceed the full cost of committing to such an arrangement in practice. In such a regime, national monetary policies in each country would be constrained to be set in such a way so as to jointly maximize some metric for global price stability and perhaps also other objectives.”
Clarida said “international monetary policy coordination, defined as including the sharing of information and analysis among central banks regarding the evolution of their individual economies and information about their policy reaction functions, can enhance the design and effectiveness of monetary policy execution for each country.”
However, he said “adopting formal global monetary policy cooperation could plausibly erode central bank credibility and public support for central bank independence.”