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Fed’s Richard Clarida: Could see bond taper announcement later this year

Yahoo Finance’s Brian Cheung to discuss the latest on Treasury Secretary Janet Yellen’s comments on infrastructure and Richard Clarida’s outlook on inflation.

Video Transcript

- Federal Reserve vice chair, Richard Clarida, is offering a timeline for an interest rate hike. We've got Yahoo Finance's fed correspondent, Brian Cheung, here now, with more on what Clarida had to say. And I know he also made some comments about inflation today, Brian. What did he say exactly?

BRIAN CHEUNG: He did all that wrapped together, in what is a pretty comprehensive summary of how the Federal Reserve is thinking after its meeting last Wednesday, where it held interest rates steady at near zero. But hinted that a taper could be coming soon, as you mentioned. The Federal Reserve Vice Chairman Richard Clarida, saying, that he could see the case for beginning the tapering process, again, of the Fed's asset purchases, as soon as this year.

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And he also suggested that, interest rate hikes could be coming as early as the beginning of 2023. All of that hinges on whether or not the unemployment rate gets to the 3.8% level that he feels would be close to maximum employment. Keep in mind right now, we're at 5.9%.

But one major caveat to all of this, is that Richard Clarida actually may not be a member of the Federal Reserve all that longer. His term is set to expire in January of 2022. But that may not stop what we've already seen from the Fed's dot plot projections, which we got two meetings ago from the FOMC, which shows a number of the 18 members on this committee seeing the case for interest rate hikes by the end of 2023.

You can see that actually, 13 of those 18 members see at least one rate hike by the end of that time frame. And the median member of that 18 member committee, sees at least two rate hikes by the end of that time horizon. So it seems like, even though Clarida is offering his remarks, it doesn't necessarily change the fact that the Fed, at least for right now, could see the case for interest rate hikes not long from now.

- All right, Brian, I want to pivot from the Fed and go over to the Treasury. You were here just a couple of days ago talking to us, about some of the extraordinary measures that the Treasury was looking to implement because of Congress not passing any legislation about that debt ceiling. What's the update there?

BRIAN CHEUNG: Yeah, well some remarks that we got from the Treasury Secretary and former Fed Chair Janet Yellen-- she was speaking down in Atlanta-- most of her remarks were focusing really, on the infrastructure bill that is still undergoing construction, no pun intended, on Capitol Hill. She was saying that really, this is the bill that's going to get the economy and the productive capacity of the economy in place.

And she was saying that, things like child care, training programs, fixing transit and roads, high-speed broadband internet, are all major priorities that she feels like, could get the economy to a higher level of GDP in the future. I want to read you a quote of what she said in those remarks early this morning. Quote, "There is a good faith discussion about how much spending is too much. But if we are going to make these investments, now is fiscally the most strategic time to make them."

And those particular remarks are the connecting point between what Yellen is saying to what the Federal Reserve is doing right now, which is pinning short-term interest rates at near zero. Even on the longer end, 10-year borrowing costs around 119 at a benchmark. 184 basis points on the 30-year, which shows that really, because of the Federal Reserve and other measures like that, now is the time to be issuing government debt and spending to make sure that they can get this infrastructure bill through.

- All right. Brian Cheung, thanks for the wrap up, appreciate it.