By Nick Timiraos
A top Federal Reserve official said Monday that the central bank would use all available tools to ensure a strong recovery from the pandemic-induced shock and that he expected more support would be needed from fiscal and monetary authorities.
Richard Clarida, the Fed's vice chairman, said officials discussed at their rate-setting committee meeting earlier this month changes they could make to the asset-purchase program, in which the central bank has been buying $120 billion a month in Treasurys and mortgage bonds.
To provide more support to the economy, officials could give more detail around how long those purchases might last or they could increase the share of long-term securities they are buying. Mr. Clarida didn't indicate Monday whether he favored any changes or whether any were imminent.
At the November meeting, officials liked the way policy had been calibrated. "We'll make adjustments as needed," Mr. Clarida said. "We're buying a lot of Treasuries. These are big programs."
The Fed's next policy meeting is scheduled for Dec. 15-16.
Analysts are split over whether the Fed will make changes to the asset buying at that meeting. On Monday, Michael Feroli, chief U.S. economist at JPMorgan Chase, said he expected the Fed to alter the composition of Treasury securities towards longer-dated ones given the near-term risks to the economy from rising coronavirus cases.
Mr. Clarida also said that he wasn't concerned by a recent uptick in 10-year Treasury yields after reports of successful vaccine developments. Higher yields could be one reason for the Fed to weigh changes to its purchases.
Yields on the 10-year Treasury jumped to 0.957% on Nov. 9 from 0.821% on Nov. 6 after Pfizer Inc. announced positive developments on the vaccine it is developing with BioNTech SE. Yields on the 10-year Treasury hovered around 0.901% on Monday afternoon.
Mr. Clarida said the medical developments were an important sign that there can be positive surprises after a year in which the economy has faced a series of grim milestones.
The successful deployment of vaccines would create an extremely attractive economic scenario, Mr. Clarida said. He also cited the "enormous quantity of pent-up savings" by U.S. households as a reason for optimism.
The bulk of Mr. Clarida's remarks elaborated on how he views the Fed's recent adoption of a new policy framework that seeks to encourage periods of inflation somewhat above the central bank's 2% target following intervals like the current one, where inflation is running below the goal and short-term interest rates are pinned near zero.
Mr. Clarida said Monday that even after the Fed raises interest rates, it will keep rates lower than officials might have otherwise done to provide more support to the economy. The average rate of inflation since the Fed adopted its new framework in August could also dictate the desired pace at which the Fed raises rates, he said.
For example, if average inflation has been notably below 2% even after the Fed meets its new conditions to raise rates, Mr. Clarida said he would favor a slower pace of rate increases than he would if average inflation since August had been closer to or equal to 2%.
At the same time, Mr. Clarida said the Fed wasn't likely to follow any hard-and-fast rule or calculation about the average rate of inflation over any period; instead, he said officials were focused on making sure expectations of future inflation stay around 2%.
"Our framework aims ex ante for inflation to average 2% over time, but it does not make a time-inconsistent commitment to achieve ex post inflation outcomes that average 2% under any and all circumstances and constellations of shocks," he said.
Write to Nick Timiraos at nick.timiraos@wsj.com
(END) Dow Jones Newswires
11-16-20 1615ET
