World News

Fed looks well beyond market pricing to shape policy, Clarida says

By Howard Schneider

NEW YORK (Reuters) – The Federal Reserve takes heed of financial market cues for where monetary policy should be headed, Fed Vice Chair Richard Clarida said on Friday, but may discount them if they conflict with what households, economists and businesses say they expect, or with what mathematical models suggest is likely.

“My colleagues and I do look at developments in asset markets, but never in isolation and always in the context of balancing asset market signals with complementary signals from surveys and econometric models,” Clarida said in remarks prepared for deliver to the annual University of Chicago Booth School of Business forum on monetary policy.

Clarida’s comments come as interest-rate futures contracts are increasingly pricing in two Fed rate cuts this year, even as economists in the most recent Reuters poll see the Fed holding rates steady through the end of 2021. Fed officials, who use a range of economic models to inform their own projects, mostly also see rates holding steady for some time to come.

“It is fair to say that when signals from all three sources line up in the same direction…the effect of those combined signals, at least on my thinking about the policy path, is more material than when the signals provide conflicting interpretations,” Clarida said.

(Writing by Ann Saphir in San Francisco; Editing by Chizu Nomiyama)