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For release on delivery
11:15 a.m. EDT
October 12, 2021

U.S. Economic Outlook and Monetary Policy

Remarks by
Richard H. Clarida
Vice Chair
Board of Governors of the Federal Reserve System
at the
2021 Institute of International Finance Annual Membership Meeting:
Sustainable Economic Growth and Financial Stability in a
Diverging, Decarbonizing, Digitizing, Indebted World
Washington, D.C.
(via webcast)

October 12, 2021

It is my pleasure to meet virtually with you today at the 2021 Institute of
International Finance Annual Membership Meeting. 1 I regret that we are not meeting in
person, but I look forward, as always, to a conversation with my good friend and onetime colleague Tim Adams. But first, please allow me to offer a few remarks on the
economic outlook and Federal Reserve monetary policy.
Current Economic Situation and Outlook
Indicators of economic activity and employment reveal that the economy
continues to strengthen. Real gross domestic product (GDP) rose at a strong 6.4 percent
pace in the first half of the year, and growth is widely expected to continue at a robust, if
perhaps somewhat slower, pace in the second half of the year. If so, GDP growth this
calendar year could be the fastest since 1983. That said, the data also indicate that a
surge in COVID-19 cases in the summer and supply-chain bottlenecks held back
economic activity in the third quarter.
As with overall economic activity, conditions in the labor market have continued
to improve. Job gains as measured by the payroll survey have averaged 550,000 per
month over the past three months. Labor market progress this year, as measured by the
Kansas City Fed’s Labor Market Conditions Indicators, has been notable, with this index
of 24 labor market indicators since December 2020 closing two-thirds of its shortfall
relative to its pre-pandemic level. 2 Nonetheless, factors related to the pandemic, such as
caregiving obligations and ongoing fears of the virus, continue to weigh on employment

The views expressed are my own and not necessarily those of other Federal Reserve Board members or
Federal Open Market Committee participants. I would like to thank Chiara Scotti for assistance in
preparing these remarks.
2
The Labor Market Conditions Indicators can be found on the Kansas City Fed’s website at
https://www.kansascityfed.org/data-and-trends/labor-market-conditions-indicators.
1

-2and participation. Thus, the course of the labor market, and indeed that of the economy,
continues to depend on the course of the virus.
Since February 2020, core PCE (personal consumption expenditures) price
inflation is running at a 2.9 percent annual pace that is well above what I would consider
to be a moderate overshoot of our 2 percent longer-run goal for inflation. Fully
reopening the $20 trillion economy this year is taking longer and costing more than it did
to shut it down last year. In particular, the reopening has been characterized by
significant sectoral shifts in both aggregate demand and supply, and these shifts are
causing widespread bottlenecks and triggering substantial changes in the relative price
and wage structure of the economy. A similar reopening dynamic is playing out in other
advanced economies, such as Canada and the United Kingdom. As these relative price
adjustments work their way through the economy, measured inflation rises. But I
continue to believe that the underlying rate inflation in the U.S. economy is hovering
close to our 2 percent longer-run objective and, thus, that the unwelcome surge in
inflation this year, once these relative price adjustments are complete and bottlenecks
have unclogged, will in the end prove to be largely transitory. And this is a forecast that
is shared by the vast majority of economists in the private sector, such as those surveyed
by Bloomberg and Blue Chip. That said, I believe, as do most of my colleagues, that the
risks to inflation are to the upside, and I continue to be attuned and attentive to
underlying inflation trends, in particular measures of inflation expectations, including the
Board staff’s index of common inflation expectations. 3 As Chair Powell has indicated, if
we did see indicators of inflation expectations moving up and running persistently above
The Fed staff’s index of common inflation expectations—which is now updated quarterly on the Board’s
website—is a relevant indicator that this goal is being met. See Ahn and Fulton (2020, 2021).
3

-3levels consistent with our price stability mandate, monetary policy would react to that.
But that is not the case at present.
The September Decision and the Forward Guidance in Our FOMC Statement
Let me now say a few words about the decisions reached at our September FOMC
meeting. Since our December 2020 meeting, the Committee has indicated that it will
continue to maintain the pace of Treasury and mortgage-backed securities purchases at
$80 billion and $40 billion per month, respectively, until “substantial further progress”
has been made toward our maximum-employment and price-stability goals. 4 At our
September meeting, the Committee continued to discuss the progress made toward these
goals, and I myself believe that the “substantial further progress” standard has more than
been met with regard to our price-stability mandate and has all but been met with regard
to our employment mandate. If progress continues broadly as expected, the Committee
in September judged that a moderation in the pace of asset purchases may soon be
warranted. At our meeting, we also discussed the appropriate pace of tapering asset
purchases once economic conditions satisfy the criterion laid out in the Committee’s
guidance. While no decisions were made, participants generally view that, so long as the
recovery remains on track, a gradual tapering of our asset purchases that concludes
around the middle of next year may soon be warranted.
It is important to note that any future decision the Committee might make with
regard to the pace of asset purchases will not be intended to carry a signal about the
timing of a future decision to raise the target range for the federal funds rate, a policy
decision for which we have articulated a different and substantially more stringent test.
FOMC statements, including those issued since the December 2020 meeting, are available on the Board’s
website at https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm.

4

-4As we reaffirmed in September, we continue to expect that it will be appropriate to
maintain the current 0 to ¼ percent target range for the federal funds rate until labor
market conditions have reached levels consistent with the Committee’s assessment of
maximum employment and inflation has risen to 2 percent and is on track to moderately
exceed 2 percent for some time. At least half of the 18 FOMC participants in their
Summary of Economic Projections (SEP) submissions projected that these necessary
threshold conditions for liftoff will be met by December 2022, and all participants but 1
project that these conditions will be met by December 2023.5 These projections are
entirely consistent with the new monetary policy framework adopted unanimously by the
Committee in August 2020. 6 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. Indeed, under
present circumstances, I judge that the support to aggregate demand from fiscal policy—
including the nearly $2 trillion in accumulated excess savings accruing from (as yet)
unspent transfer payments—in tandem with appropriate monetary policy, can fully offset
the constraint, highlighted in our Statement on Longer-Run Goals and Monetary Policy
Strategy, that the ELB imposes on the ability of an inflation-targeting monetary policy,
acting on its own and in the absence of sufficient fiscal support, to restore, following a

The most recent SEP, released following the conclusion of the September 2021 FOMC meeting, is
available on the Board’s website at https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm.
6
The revised Statement on Longer-Run Goals and Monetary Policy Strategy, unanimously approved on
August 27, 2020, is available on the Board’s website at
https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-andcommunications-statement-on-longer-run-goals-monetary-policy-strategy.htm. For a discussion of the
elements that motivated the launch of the review and a summary of the key changes that were introduced,
see Clarida (2020, 2021) and Powell (2020).
5

-5recession, maximum employment and price stability while keeping inflation expectations
well anchored at the 2 percent longer-run goal. 7
Thank you very much for your time and attention. I look forward, as always, to
my conversation with Tim.

For a theoretical analysis of the fiscal and monetary policy mix at the ELB, see Woodford and Xie (2020).
For studies of the government expenditure multiplier at the ELB, see Woodford (2011); Christiano,
Eichenbaum, and Rebelo (2011); and Eggertsson (2011).

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-6References
Ahn, Hie Joo, and Chad Fulton (2020). “Index of Common Inflation Expectations,”
FEDS Notes. Washington: Board of Governors of the Federal Reserve System,
September 2, https://doi.org/10.17016/2380-7172.2551.
——— (2021). “Research Data Series: Index of Common Inflation Expectations,”
FEDS Notes. Washington: Board of Governors of the Federal Reserve System,
March 5, https://doi.org/10.17016/2380-7172.2873.
Christiano, Lawrence, Martin Eichenbaum, and Sergio Rebelo (2011). “When Is the
Government Spending Multiplier Large?” Journal of Political Economy, vol. 119
(February), pp. 78–121.
Clarida, Richard H. (2020). “The Federal Reserve’s New Framework: Context and
Consequences,” speech delivered at “The Economy and Monetary Policy,” an
event hosted by the Hutchins Center on Fiscal and Monetary Policy at the
Brookings Institution, Washington (via webcast), November 16,
https://www.federalreserve.gov/newsevents/speech/clarida20201116a.htm.
——— (2021). “The Federal Reserve’s New Framework and Outcome-Based Forward
Guidance,” speech delivered at “SOMC: The Federal Reserve’s New Policy
Framework,” a forum sponsored by the Manhattan Institute’s Shadow Open
Market Committee, New York (via webcast), April 14,
https://www.federalreserve.gov/newsevents/speech/clarida20210414a.htm.
Eggertsson, Gauti B. (2011). “What Fiscal Policy Is Effective at Zero Interest Rates?” in
Daron Acemoglu and Michael Woodford, eds., NBER Macroeconomics Annual
2010, vol. 25 (Chicago: University of Chicago Press), pp. 59–112.
Powell, Jerome H. (2020). “New Economic Challenges and the Fed’s Monetary Policy
Review,” speech delivered at “Navigating the Decade Ahead: Implications for
Monetary Policy,” a symposium sponsored by the Federal Reserve Bank of
Kansas City, held in Jackson Hole, Wyo., August 27,
https://www.federalreserve.gov/newsevents/speech/powell20200827a.htm.
Woodford, Michael (2011). “Simple Analytics of the Government Expenditure
Multiplier,” American Economic Journal: Macroeconomics, vol 3 (January),
pp. 1–35.
Woodford, Michael, and Yinxi Xie (2020). “Fiscal and Monetary Stabilization Policy at
the Zero Lower Bound: Consequences of Limited Foresight,” NBER Working
Paper Series 27521. Cambridge, Mass.: National Bureau of Economic Research,
July, https://www.nber.org/papers/w27521.