Fed Clarida Q&A.

  • I have been surprised by the fall in yields
  • Some of it might be Covid. Some of it may be global rates.
  • Rate decline is not driven by a drop in inflation expectations
  • Want to delay lift off until we reach 2% inflation and are in the ZIP Code of maximum employment
  • A regime that delays lift off until 2% inflation and maximum employment met is a regime that can sustain 2% inflation over time
  • I think we will no more about the labor market over the next several months then we do now. Is it concern about the virus, childcare, supplemental employment benefits that is containing the jobs market.
  • My baseline view is we will see some pretty healthy increases in effective labor supply and employment trends
  • There is a downside risk to that outlook
  • When the labor market improves, the gains across society are uneven
  • My baseline is that participation rate is to move up to and and somewhat above the demographic trend
  • I think of maximum employment as the maximum sustainable level of employment that is consistent with our objective of 2% inflation over time. Needs to be looked out in relation to the dual mandate.
  • I expect the economy to move towards further substantial progress. If the baseline outlook does materialize, I can see a reduction of the asset purchases later this year. If the economy does not progress as expected then I would change that outlook
  • Can certainly see the Fed announcing a taper later this year
  • By the time the taper is done I would expect that the market would be able to absorb the events in the markets.
  • Soft landings are what all central bankers aspire to.
  • The rise in housing prices are not being driven by loose credit standards or poor lending
  • A lot of people who delayed moves into the housing are doing so now. Low rates are helping as well
  • A big part of what is happening in the housing market is demographics and income, but also low rates have an impact as well
  • Different countries in different regions are at much different places as far as vaccinations and that leads to differences in the recoveries.

As mentioned previously, the comments were more hybrid, but his openness to start tapering by the end of the year IF his baseline projections of reaching further substantial progress are met, is a tilt in the hawkish direction. He hedged himself by saying if those baseline projections are NOT met, then he would changes projection for tapering.