June 16, 2020 / 8:20 PM / in 2 months

Fed's Clarida says pandemic could push U.S. inflation too low

FILE PHOTO: Federal Reserve Vice Chairman Richard Clarida, boards a bus to tour South Dallas as part of a community outreach by U.S. central bankers, in Dallas, Texas, U.S., February 25, 2019. REUTERS/Ann Saphir

SAN FRANCISCO (Reuters) - The ongoing coronavirus crisis is dragging inflation down, Federal Reserve Vice Chair Richard Clarida warned on Tuesday, another sign that the U.S. economy may need more help from the central bank and Congress before it can return to health.

Inflation expectations, already low at the start of the recession that began in February, are “at risk of falling below” a range consistent with the Fed’s 2% inflation goal, Clarida said in remarks prepared for delivery to the Foreign Policy Association in New York.

“I will place a high priority on advocating policies that will be directed at achieving not only maximum employment, but also well-anchored inflation expectations consistent with our 2 percent objective,” he said. “Depending on the course of the virus and the course of the economy, more support from both fiscal and monetary policy may be called for.”

Fed policymakers including Chair Jerome Powell have focused most heavily on the need to bring back the millions of jobs lost in the recession. Clarida’s remarks suggest that the drag that too-low inflation can exert on growth is equally a concern motivating the Fed’s unprecedented support for the economy. That included last week’s pledge to continue buying $120 billion of bonds monthly and a signal the Fed plans to keep interest rates near zero for years.

Recently eased financial conditions from the Fed’s unprecedented credit and market backstops and willingness to lend freely to much of the economy if needed should help households and firms, he said.

Clarida echoed Powell’s view earlier in the day in Congressional testimony that jobs growth in May was a “welcome” development. He also agreed with Powell that the economy will resume growth in the third quarter after an expected large decline in the current quarter.

The return to a healthy economy will take “some time,” Clarida said.

Reporting by Ann Saphir; Editing by Andrea Ricci

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