Richard H Clarida: US economic outlook and monetary policy
Speech by Mr Richard H Clarida, Vice Chair of the Board of Governors of the Federal Reserve
System, at the 36th Annual NABE Economic Policy Conference "2020 Vision: Examining Policy
Prescriptions in an Election Year", Washington DC, 25 February 2020.
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Thank you for the opportunity to participate again this year in the Annual Economic Policy
Conference of the National Association for Business Economics. I am really looking forward to
this conversation. But first, I would like to share with you some thoughts about the outlook for the
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U.S. economy and monetary policy.
In its 11th year of a record expansion, the U.S. economy is in a good place. The labor market
remains strong, economic activity is increasing at a moderate pace, and the Federal Open
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Market Committee's (FOMC) baseline outlook is for a continuation of this performance in 2020.
At present, personal consumption expenditures, or PCE, price inflation is running somewhat
below the Committee's 2 percent objective, but we project that, under appropriate monetary
policy, inflation will rise gradually to our symmetric 2 percent objective. Although the
unemployment rate is around a 50-year low, wages are rising broadly in line with productivity
growth and underlying inflation. We are not seeing any evidence to date that a strong labor
market is putting excessive cost-push pressure on price inflation.
Although the fundamentals supporting household consumption remain solid, over 2019, sluggish
growth abroad and global developments weighed on investment, exports, and manufacturing in
the United States. Coming into this year, indications suggested that headwinds to global growth
had begun to abate, and uncertainties around trade policy had diminished. However, risks to the
outlook remain. In particular, we are closely monitoring the emergence of the coronavirus, which
is likely to have a noticeable impact on Chinese growth, at least in the first quarter of this year.
The disruption there could spill over to the rest of the global economy. But it is still too soon to
even speculate about either the size or the persistence of these effects, or whether they will lead
to a material change in the outlook. In addition, U.S. inflation remains muted. And inflation
expectations-those measured by surveys, market prices, and econometric models-reside at
the low end of a range I consider consistent with our price-stability mandate.
Over the course of 2019, the FOMC undertook a shift in the stance of monetary policy to offset
some significant global growth headwinds and global disinflationary pressures. I believe this shift
was well timed and has been providing support to the economy and helping to keep the U.S.
outlook on track. Monetary policy is in a good place and should continue to support sustained
growth, a strong labor market, and inflation returning to our symmetric 2 percent objective. As
long as incoming information about the economy remains broadly consistent with this outlook,
the current stance of monetary policy likely will remain appropriate.
That said, monetary policy is not on a preset course. The Committee will proceed on a
meetingby-meeting basis and will be monitoring the effects of our recent policy actions along with other
information bearing on the outlook as we assess the appropriate path of the target range for the
federal funds rate. Of course, if developments emerge that, in the future, trigger a material
reassessment of our outlook, we will respond accordingly.
In January 2019, my FOMC colleagues and I affirmed that we aim to operate with an ample level
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of bank reserves in the U.S. financial system. And in October, we announced and began to
implement a program to address pressures in repurchase agreement (repo) markets that
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became evident in September. To that end, we have been purchasing Treasury bills and
conducting both overnight and term repurchase operations. These efforts have been successful
in achieving stable money market conditions, including over the year-end. As our bill purchases
continue to build reserves toward levels that we associate with ample conditions, we intend to
gradually transition away from the active use of repo operations. And as reserves reach durably
ample levels, we intend to slow the pace of purchases such that our balance sheet grows in line
with trend demand for our liabilities. Let me emphasize that we stand ready to adjust the details
of this program as appropriate and in line with our goal, which is to keep the federal funds rate in
the target range desired by the FOMC, and that these operations are technical measures not
intended to change the stance of monetary policy.
Finally, allow me to offer a few words about the FOMC's review of the monetary policy strategy,
tools, and communication practices that we commenced in 2019. This review-with public
engagement unprecedented in scope for us-is the first of its kind for the Federal Reserve.
Through 14 Fed Listens events, including a research conference in Chicago, we have been
hearing a range of perspectives not only from academic experts, but also from representatives of
consumer, labor, community, business, and other groups. We are drawing on these insights as
we assess how best to achieve and maintain maximum employment and price stability. In July,
we began discussing topics associated with the review at regularly scheduled FOMC meetings.
We will continue reporting on our discussions in the minutes of FOMC meetings and will share
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our conclusions with the public when we complete the review later this year.
Thank you very much for your time and attention. I look forward to the conversation and the
question-and-answer session to follow.
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These remarks represent my own views, which do not necessarily represent those of the Federal Reserve
Board or the Federal Open Market Committee. I am grateful to Brian Doyle of the Federal Reserve Board staff for
his assistance in preparing this text.
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The most recent Summary of Economic Projections is an addendum to the minutes of the December 2019
FOMC meeting. See Board of Governors of the Federal Reserve System (2020), "Minutes of the Federal Open
Market Committee, December 10-11, 2019," press release, January 3.
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See the Statement Regarding Monetary Policy Implementation and Balance Sheet Normalization, which is
available on the Board's website at
www.federalreserve.gov/newsevents/pressreleases/monetary20190130c.htm. Also see the Balance Sheet
Normalization Principles and Plans, available on the Board's website at
www.federalreserve.gov/newsevents/pressreleases/monetary20190320c.htm.
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See the Statement Regarding Monetary Policy Implementation, which can be found on the Board's website at
www.federalreserve.gov/newsevents/pressreleases/monetary20191011a.htm.
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Information about the review and the events associated with it is available on the Board's website at
www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications.htm.