(Bloomberg) -- Federal Reserve Vice Chairman Richard Clarida left the door open to a third straight interest-rate cut, saying the outlook for U.S. growth is favorable but the central bank will “act as appropriate” to sustain the expansion amid risks.
“The U.S. economy is in a good place, and the baseline outlook is favorable,” Clarida said Friday in a speech in Boston. Still, there are “some evident risks,” as business fixed investment has slowed “notably” and “global growth estimates continue to be marked down.”
“Global disinflationary pressures cloud the outlook for U.S. inflation,” he said. Clarida added that the Federal Open Market Committee “will proceed on a meeting-by-meeting basis to assess the economic outlook as well as the risks to the outlook, and it will act as appropriate to sustain growth.”
Officials meet Oct. 29-30 to debate the need for another quarter percentage point interest-rate cut and investors saw nearly certain chances that the central bank will ease again following reductions in July and September.
Clarida’s remarks -- among the last by a top official before the pre-meeting blackout period starts -- fit the discourse of other Fed policy makers in recent weeks.
The overall message is that the U.S. economy is on a sound footing with labor markets holding up, inflation low and the outlook for continued but moderate growth intact. Still, policy makers have showed concerns about the global slowdown and are watching to see if the deceleration in manufacturing and exports begins to affect the broader economy.
“I can’t think of a time when, in the aggregate, the U.S. consumer has been in better shape,” Clarida said during questioning by a moderator after his speech. When asked whether shocks from trade disputes would begin to impact consumer confidence and possibly erode growth further, Clarida said: “I don’t seen any evidence right now that recession risks are elevated, and we don’t see it spilling into the consumer.”
At the same time, he said risk management is an important element of policy.
Economists surveyed by Bloomberg forecast the pace of growth will slow in the second half of 2019 to about 1.75% versus around 2.5% for the first two quarters.
There are signs of deceleration.
Private sector non-farm payroll growth slowed to 114,000 jobs in September with the three month average down to 119,000 per month versus 146,000 the prior three months. At the same time, real estate markets have picked up, supported in part by the Fed’s pivot this year to lower interest rates. Household incomes are rising and that supports consumption.
“The global economy is sort of muddling through,” Clarida said in the question an answer period. “Manufacturing globally is definitely slumping.”
Clarida is leading, at Chairman Jerome Powell’s request, the Fed’s review of tools and strategies which is being conducted with input from labor groups, business leaders and academic economists.
“We will continue reporting on our discussions in the meeting minutes and share our conclusions when we finish the review during the first half of next year,” he said.
(Adds Clarida comment on recession risks in seventh paragraph.)
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Craig Torres in Washington at [email protected]
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Alister Bull at [email protected]
Scott Lanman
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