'US Fed won't begin raising rates until inflation hits 2%'

Washington: The US Federal Reserve will not consider raising interest rates from near zero until inflation has hit the 2 per cent target, said the central bank's Vice Chairman Richard Clarida.

"We're not going to even begin to think about lifting off, we expect, until we actually get observed inflation -- and we measure it on a year-over-year basis, equal to 2 per cent," Xinhua news agency quoted Clarida as saying in an interview on Wednesday.

"We now think that to anchor inflation expectations at 2 per cent, we need, coming out of recessions, to spend some time above 2% to balance off those times that we've been below," Clarida said. "We don't want it to be a fleeting, you know, one quarter and done."

Clarida noted that it would take several years before the Fed starts raising rates, as the US economy is recovering from the Covid-19 induced recession. "The economy is recovering robustly, but we are still in a deep hole," he said.

The Fed last week kept its benchmark interest rate unchanged at the record-low level of near zero and signaled to maintain this target range until at least 2023, noting that the path of the economy will depend significantly on the course of the coronavirus.

Clarida's remarks came after Charles Evans, president of the Federal Reserve Bank of Chicago, said on Tuesday that the Fed could raise rates before inflation averages 2 per cent for some period of time.

The Fed announced in August that it will seek to achieve inflation that averages 2 per cent over time, a new strategy for carrying out monetary policy to help fight the Covid-19 pandemic and boost economic recovery.