Fed Vice Chair Richard Clarida emphasized yesterday that policymakers would “put in place policies that not only achieve but sustain price stability and maximum employment, and we’ll do that if we need to.” He added that interest rates are now at the lower end of that range consistent with 2% inflation. While markets are pricing in rate cuts as tariff wars have intensified, he noted Fed shouldn’t be “handcuffed” to fluctuations in markets.
On yield curve, Clarida said “historically a flat yield curve doesn’t convey a lot of information”. However, if yield curve inversion “persists for some time”, “that’s obviously something I would definitely take seriously.” But for now, “I would not view this as a strong signal of concern. We are early into it. It’s certainly something we’ll keep looking at.”
Separately, in a WSJ interview, Dallas Fed Robert Kaplan sounded calm regarding the trade tensions between US, China and Mexico. He said: “I want to take a little bit more time and be patient here, because some of these recent events could be reversed… Worth being cognizant of the fact that these recent tensions have just elevated in the last five, six weeks… And in the next five, six weeks, a number of them could be alleviated.”
