Fed's Clarida Says Continuing Support Will Be Needed to Sustain Recovery

By Michael S. Derby

Federal Reserve Vice-Chairman Richard Clarida said Wednesday that the U.S. economy's recovery has been surprisingly strong after a heavy hit earlier in the year, but that continuing support will be needed to recover what was lost so far during the coronavirus pandemic.

"It will take some time to return to the levels of economic activity and employment that prevailed at the business cycle peak in February, and additional support from monetary -- and likely fiscal -- policy will be needed," Mr. Clarida said in the text of a speech to be delivered at a virtual event.

"Speaking for the Fed, I can assure you that we are committed to using our full range of tools to support the economy and to help ensure that the recovery from this difficult period will be as robust and rapid as possible," he said.

Mr. Clarida, who is the Fed's second-in-command, didn't say what, if any, additional actions the Fed might be contemplating. The central bank has its short-term rate target at near-zero levels and has signaled it expects to keep it there until at least 2023. It's also buying substantial amounts of bonds and is operating a slew of programs offering credit to various parts of the economy.

Over recent weeks, a number of Fed officials, including Fed chairman Jerome Powell, have also flagged the importance of additional government aid to help the economy. But elected officials have thus far been unable to deliver this new round of support, which has caused concern from some regional Fed bank presidents.

In his remarks, Mr. Clarida said the recovery thus far has been swift and a sign of how effective government and central bank actions have been.

"Many voices questioned what good rate cuts, forward guidance, asset purchases, and lending programs could do in an economy in which people do not venture out to buy cars or build houses and in which companies do not invest to augment their capital stock," Mr. Clarida said. "Well, the data show us that with rates low, credit available, and incomes supported by fiscal transfers, the answer is -- at least so far -- that they do build houses, buy cars, and order equipment and software."

The central banker said the path ahead remains "unusually uncertain" and what happens will depend heavily on the health-care response to the coronavirus. But he added that the rebound in economic data since May has been "surprisingly strong" and added that recovery "has been broad-based across indicators of goods consumption, housing, and investment."

But the official still expects the path of recovery will be long, and he said that his outlook for the economy is close to the one entailed in forecasts released by the central bank at its September Federal Open Market Committee meeting.

"It will take some time, perhaps another year, for the level of [gross domestic product] to fully recover to its previous 2019 peak," Mr. Clarida said. "It will likely take even longer than that for the unemployment rate to return to a level consistent with our maximum-employment mandate," he added.

Mr. Clarida also said the Fed's newly revised policy-making framework shows the Fed won't be quick to raise rates. "A low unemployment rate, in and of itself, will not be sufficient to trigger a tightening of monetary policy absent any evidence from other indicators that inflation is at risk of moving above mandate-consistent levels," he said.

Write to Michael S. Derby at [e-mail]

(END) Dow Jones Newswires

10-14-20 0915ET