The contours of debate within the U.S. central bank over when to dial back support for the economy burst into the open on Wednesday as a key architect of the Federal Reserve’s new policy strategy said he feels the conditions for raising interest rates could be met by the end of 2022.
“Commencing policy normalization in 2023 would, under these conditions, be entirely consistent with our new flexible average inflation targeting framework,” Federal Reserve Vice Chair Richard Clarida said in a webcast discussion hosted by the Peterson Institute for International Economics.
Clarida helped craft that framework, adopted last August, under which the Fed has pledged to keep rates at their current near-zero level until the economy reaches full employment, and inflation hits the Fed’s 2% goal and is on track to moderately exceed that pace for some time.
Meanwhile, Clarida added, he could “certainly” see the Fed announcing a reduction in its $120-billion-a-month asset purchase program later this year, given the surprising pace of the economic recovery from the coronavirus pandemic.
