Fed Clarida presents options for the revision of the policy framework

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(More Bank) – Richard Clarida, vice president of the US Federal Reserve, said it was time for the US central bank to look into how it would pursue its twin goals of maximum employment and price stability.

Clarida's speech is the first detailed description of the Fed's plan this year to organize a series of events to discuss its policy framework.

"In light of the unprecedented events of the last decade, we believe that the time has come to step back and assess whether, and in what ways, we can refine our strategy, tools and practices. communication, "said Friday Clarida in the text. from a speech that he will deliver in New York.

"It makes sense that we remain open-minded when we evaluate current practices and consider ideas that can improve our ability to achieve the goals we have been assigned by Congress," he said. of an annual conference on monetary policy organized by the University of Chicago Booth School of Business.

The Fed Framework Review begins with an event in Dallas on Monday and will include a research conference in Chicago in June. Clarida has announced that the Fed will release the findings of this review in the first half of next year.

He echoed Fed Chairman Jerome Powell's comment that the time was right to proceed with the re-evaluation because the economy is operating at a level close to our objectives in the area of ​​energy efficiency. employment and price stability ".

Well positioned

"In conducting this review, we want to ensure that we are well positioned to continue to achieve our statutory goals in the coming years," said Clarida.

He said that a variety of factors, including the aging of the population and the decrease in risk appetite, suggest that low interest rates "will persist for years"; which increases the likelihood that the Fed will go down, when interest rates reach zero before they can sufficiently stimulate a slowing economy.

When revising its core strategies, Clarida made it clear that the Fed would not change its inflation target from the current level of 2%. Policymakers would, however, consider whether the central bank should adopt a strategy to offset periods of below-target inflation with periods of higher price rises than the target.

Fed officials should also reassess the effectiveness of their policy tools in addressing the deep recession that followed the 2008-09 financial crisis and consider what additional tools could be added to prepare for the next downturn. He referred to a Bank of Japan crisis policy, which would seek to establish a temporary cap on longer-term Treasury debt yields as a possible tool.

He added that the Fed "would evaluate the current and past communications of the committee and the additional forms of communication that might be useful", referring to the Federal Open Market Committee.

Communication has been difficult for the central bank. In December, the Fed announced that it was ready to cross two further rises in 2019, despite the collapse of the financial markets and the concern that a dismantling of its huge portfolio of financial markets is taking place. bonds could worsen volatility. Equities have fallen further, forcing the Fed to adopt a message of patience and flexibility, which they ratified in their January statement and helped calm investors.

To contact the reporters on this story: Craig Torres in Washington at ctorres3@More Bank.net, Rich Miller in Washington at rmiller28@More Bank.net, Christopher Condon in Washington at ccondon4@More Bank.net

To contact the editor responsible for this story: Alister Bull at abull7@More Bank.net

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