Richard Clarida, the former Vice Chair of the Federal Reserve, suggested the possibility of the Federal Reserve cutting interest rates three times this year as inflation and the labor market cool down in the U.S.
In an interview with the local English newspaper South China Morning Post (SCMP) on the 22nd during his visit to Hong Kong, Clarida expressed optimism about three rate cuts by the end of the year, noting that the U.S. and inflation and employment data have been favorable for the Fed since May.
He mentioned that inflation has been around 2% over the past three months, prompting the Fed to focus more intently on analyzing the stabilizing employment indicators.
Clarida served as the Fed’s Vice Chair from 2018 to 2022 and is a global economic advisor for PIMCO’s bond management firm.
PIMCO predicts that the Fed will lower rates twice, including in September.
Earlier this month, Fed Chair Jerome Powell testified before Congress that the labor market remains strong but not overheated, and the U.S. economy is no longer overheated, raising expectations for rate cuts.
The U.S. unemployment rate rose to 4.1% in June, marking the highest in two and a half years. However, it remains historically low.
Traders are nearly sure that the Fed will begin cutting rates in September.
Clarida noted that the Fed raising rates 11 times since 2022 has impacted the bond market.
He anticipates that the Fed’s rate cuts will benefit investors in Asia.
As rates decrease, he expects that the spreads of Asian central banks will narrow, alleviating pressure on currency appreciation.
He also pointed out that variables could emerge before December, suggesting persistent inflation that could halt rate cuts, a sharp slowdown in the U.S. economy that could accelerate rate cuts, and the potential declines in Treasury yields due to rising global geopolitical tensions.
In the interview, Clarida also discussed artificial intelligence (AI).
He stated that while AI will bring about changes, its impact on macroeconomic data, such as production and inflation, will not be evident for several years.
Furthermore, mentioning the PC boom of the 1980s, he added that further discussion is needed regarding whether production will continue in the IT sector.
