Fed’s Vice Chair Richard Clarida said that long-term inflation expectations are at risk of falling and the US may need more support from fiscal policy.
He went on to say that this is an extraordinary uncertainty on downturn duration, depth and the Fed will place a high priority on anchoring inflation expectations. The Vice Chair went on to say growth is expected to resume in Q3 and a full recovery will take time. Clarida also stated that the aggressive measures are aimed at limiting crisis duration.
Real gross domestic product (GDP) declined at a 5 percent annual rate in the first quarter of the year and will almost surely continue to contract at an unprecedented pace in the second quarter. The unemployment rate, which reached a 50-year low of 3.5 percent as recently as February of this year, surged to 14.7 percent in April, an 80-year high.
GDP is falling deeply below its recent peak. And, of course, despite the improvements seen in the May jobs report, the unemployment rate, at 13.3 percent, remains historically high.
At the end of the speech Clarida concludes by saying:
One thing that I am certain about: The Federal Reserve will continue to act forcefully, proactively, and aggressively as we deploy our toolkit—including our balance sheet, forward guidance, and lending facilities—to provide critical support to the economy during this challenging time and to do all we can to make sure that the recovery from this downturn, once it commences, is as robust as possible.
To read the full press release click here.
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