Former Federal Reserve Vice Chair Richard Clarida on Thursday said he thinks another interest-rate hike this year would be a wise move by the U.S. central bank.
In an interview on Bloomberg, Clarida said the biggest risk for the Fed is to declare “mission accomplished” too early and having to restart rate hikes next year.
“So if I were there, it would skew me to getting in that additional hike this year, and I think some members of the Fed will see it that way,” Clarida said.
Fed Chair Jerome Powell said Wednesday that the Fed will decide what to do about interest rates on a “meeting-by-meeting” basis.
Read: Fed no longer foresees a U.S. recession, highlights from Powell presser
The Fed is forecasting that the unemployment rate will rise to 4.5% by the end of 2024 from 3.6% in June.
That is still a forecast for recession because under the Sahm rule, created by former top Fed staffer Claudia Sahm, the start of a recession is signaled when the three-month moving average on the unemployment rate rises by 0.5 percentage points or more from its low during the past year.
But Clarida said the Fed faces an alternative scenario where inflation picks up again early next year after slowing later this year.
“If the Fed finds itself in March of 2024 with an unemployment rate of 4% and and inflation rate of 4% with some of that temporary good news [on inflation] behind them, they’re in a very tough spot,” he said.
“I do think that’s a risk. It’s not the base case,” he said.
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