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The No. 2 official at the Federal Reserve on Monday said the U.S. economy was fundamentally sound and the central bank would not need to continue its massive support of financial markets indefinitely.
“I’m very confident that as the economy recovers from this hit and begins to recover that we, at the appropriate time, will be able to unwind these programs. There is nothing fundamentally wrong with the U.S. economy,” Fed Vice Chairman Clarida, said in an interview on Bloomberg Television.
Read: Fed announces lending programs to push $2.3 trillion in the economy
The Fed has established nine lending facilities to keep credit flowing into all corners of the financial markets. Clarida called it an ambitious, aggressive and forceful use of monetary policy.
He downplayed any worry about “moral hazard” — a term for the worry that the Fed’s actions would ultimately spark investors to take even greater risk during the next expansion. Business are closing and people are unemployed through no fault of their own, and so moral hazard is not a relevant consideration, he said.
The Fed was only buying “junk” bonds of companies that had lost their investment-grade status only as a result of the crisis, he said.
Clarida said the central bank would keep its benchmark interest rate close to zero until the economy is on track. “The path of the economy is going to dictate the path of rates,” he said.
Read: How the Fed plans to keep credit flowing to U.S. consumers
The Fed vice chairman said he didn’t think the crisis would result in a higher inflation rate. The worry was more about deflation, which he said the Fed would be able to combat effectively.
Stock-index futures YM00, -0.57% were lower early Monday as first-quarter earnings season got underway.
