Fed Vice Chair Richard Clarida said in a speech that inflation is estimated to have been “a little bit below 2 percent of late”, largely because of “recent decline in energy prices”. But the better indicator of future inflation, core PCE, is estimated to have been “about 2 percent”. AT the same time, market-base measures of inflation compensation have “moved lower, on net”. Some survey-based measures of longer-term inflation expectations are little changed. Taken together, Clarida said “evidence suggests that measures of expected inflation are at the lower end of a range that I consider to be consistent with our price-stability goal of 2 percent PCE inflation.”
But he also noted that “a number of crosscurrents that are buffeting the economy bear careful scrutiny”. He echoed Fed Chair Jerome Powell’s comments and pointed to slowing global growth, “in particular in China an Europe”, global policy uncertainty, volatile financial market conditions. And they are “making efforts to extract signal from noise more challenging.”
Clarida also reiterated Fed’s position that “with employment and inflation now at or close to our dual-mandate objectives, the FOMC in its January statement indicated it can afford to be patient as we assess the need for further adjustments in our policy stance”.
He added that going forward, Fed needs to be “cognizant of the balance we must strike between (1) being forward looking and (2) maximizing the odds of being right given the reality that the models that we consult are not infallible.”
