Clarida’s Very Hawkish Speech Confirms Abandonment of FAIT
- By Dominique Dwor-Frecaut
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- 3 minutes read
The Federal Reserve normalising policy into a supply shock means they have effectively given up on FAIT. Vice Chair Clarida’s very hawkish speech yesterday confirmed such. Fiscal easing has been so large that we need not worry about tightening monetary policy, Clarida essentially said. That is, my take of the very long (150 words!) and convoluted last two sentences of the speech:
‘In the context of our new framework, as I have noted before, while the effective lower bound (ELB) can be a constraint on monetary policy, the ELB is not a constraint on fiscal policy, and appropriate monetary policy under our new framework, to me, must—and certainly can—incorporate this reality.’
The Federal Reserve normalising policy into a supply shock means they have effectively given up on FAIT. Vice Chair Clarida’s very hawkish speech yesterday confirmed such. Fiscal easing has been so large that we need not worry about tightening monetary policy, Clarida essentially said. That is, my take of the very long (150 words!) and convoluted last two sentences of the speech:
‘In the context of our new framework, as I have noted before, while the effective lower bound (ELB) can be a constraint on monetary policy, the ELB is not a constraint on fiscal policy, and appropriate monetary policy under our new framework, to me, must—and certainly can—incorporate this reality.’
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