Federal Reserve Vice Chairman Richard Clarida said Thursday he believes the U.S. economy remains in “a good place” and unusually high job rates can persist, fueling stronger economic growth.
In a speech at the Economic Club of New York, Clarida said he could see a situation in which the economy’s strength continues to draw more workers who had previously given up on employment, saying labor force participation among those in prime employment ages “may still have some more room to run.”
“If so, then potential [economic] output could be higher than many current estimates suggest,” said Clarida.
The Fed vice chairman noted that last year’s mixture of tax cuts and increased federal spending were a big spur to the economy.
“By most estimates, fiscal policy played an important role in boosting growth in 2018, and I expect that fiscal policies will continue to support growth in 2019,” Clarida said.
But he warned that economic outlooks for other countries, which trade conflict and uncertainty have made rockier, could harm the United States, presenting “a material downside risk” to projected economic growth this year and next.
Clarida also cautioned that the Fed could have a harder time using its normal tools to avert an economic downturn, noting that the bank would likely have to return its benchmark interest rate to near zero, where it hovered for years following the 2008 financial crisis.
Businesses, as well as President Trump, might welcome Clarida’s statement that the Fed could move to a “more accommodative policy” — meaning lower interest rates — if economic data begin to suggest a downturn. Trump has called for a substantial cut to Fed rates to help overcome the negative effects his administration’s tariffs have on the economy.
The federal funds rate that the Fed sets as a benchmark for lending rates currently hovers between 2.25 and 2.5%.
