Jan 13 (Reuters) - Beginning to normalize monetary policy this year would be "entirely consistent" with the Federal Reserve's new average inflation targeting framework, Fed Vice Chair Richard Clarida said in a paper released Thursday.
Clarida said he expects the labor market to reach maximum employment by the end of 2022 if the unemployment rate falls to 3.5%. "Given this outlook and so long as inflation expectations remain well anchored at the 2 percent longer-run goal ... commencing policy normalization in 2022 would, under these conditions, be entirely consistent with our new flexible average inflation targeting framework," Clarida wrote.
Clarida also said he expects the "unwelcome" inflation surge that started last year "will in the end prove to be largely transitory under appropriate monetary policy." He said he believes the underlying inflation rate is close to the Fed's 2% longer-run target and that pressures may ease as supply chain bottlenecks ease.
The Fed official announced this week that he will resign on Friday https://www.reuters.com/markets/us/feds-clarida-resign-jan-14-two-weeks-ahead-end-term-2022-01-10, two weeks ahead of the end of his term. His resignation followed reports that he corrected his previous financial disclosure late last month to show he sold a stock fund and then swiftly repurchased it shortly before the Fed announced an array of rescue efforts to stem the economic fallout from the coronavirus pandemic. (Reporting by Jonnelle Marte; editing by Jonathan Oatis)
