Clarida Says Fed Policy Appropriate While Bank’s Watching Risks

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The U.S. economy is in a good place, but the Federal Reserve is watching downside risks as it seeks to sustain an expansion that is poised to become the longest on record, said Vice Chairman Richard Clarida.

“The U.S. economy is in a very good place, with the unemployment rate near a 50-year low, inflationary pressures muted, expected inflation stable, and GDP growth solid and projected to remain so,’’ Clarida said Thursday in the text of his remarks to The Economic Club of New York.

However, he cautioned that if data showed a “persistent shortfall” under the Fed’s 2% target, or signaled that “global economic and financial developments present a material downside risk to our baseline outlook,” the Federal Open Market Committee would take that into account as it weighed monetary policy.

U.S. central bankers next meet June 18-19. Investors betting on U.S. economic weakness have driving the yield on 10-year Treasury notes to 2.25% from 2.5% on May 1, when the Fed left rates on hold and reiterated it will be “patient’’ on future adjustments to monetary policy. That’s deepened the inversion of the yield curve, which has heralded oncoming recessions in the past.

Michael Gapen, chief U.S. economist at Barclays Capital Inc., said investors are flocking to high-quality assets due to a “breakdown in trade talks between the U.S. and China,’’ which points to a longer trade war that is weighing on global growth prospects. JPMorgan’s Global Manufacturing PMI stood at 50.3 last month, the lowest reading in three years.

Clarida said the U.S. central bank is closer to achieving its dual mandate of maximum employment and stable prices than any period in the past 20 years. The Fed’s mission now is also focused on sustaining those conditions, he said. That said, he noted that “indicators suggest that longer-term inflation expectations sit at the low end of a range that I consider consistent with our price-stability mandate.”

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