Clarida Says Fed Won't Consider Raising Rates Until Inflation Hits 2%

The video discusses the goals of maximum employment and price stability, defined as 2% inflation in the long run. It highlights the challenges posed by low policy rates, which create a downward bias on inflation and an upward bias on unemployment. To address these, the video explains the need for a flexible approach to monetary policy, allowing inflation to fluctuate around 2% to anchor expectations. Forward guidance is provided, indicating that interest rates will remain low until maximum employment and 2% inflation are achieved. The video also emphasizes the importance of observable metrics for determining when to adjust rates.

What are the two main goals mentioned in the first section regarding economic policy?

• Maximum employment and price stability

• High GDP growth and low taxes

• Increased exports and reduced imports

• Balanced budget and low national debt

Why is it important to spend time above and below the 2% inflation target?

• To anchor inflation expectations

• To confuse the market

• To increase government revenue

• To reduce interest rates

What does the central bank's forward guidance indicate about interest rates?

• They will remain at zero until certain conditions are met

• They will fluctuate randomly

• They will decrease to negative values

• They will increase immediately

When does the central bank plan to consider lifting interest rates?

• When observed inflation reaches 2% and employment is maximized

• When inflation is below 1%

• When the stock market is stable

• When GDP growth is high

What is meant by 'seeing the whites of inflation's eyes' in the context of policy actions?

• Waiting for inflation to be clearly visible

• Ignoring inflation completely

• Acting before inflation is observed

• Reducing inflation to zero