Federal Reserve

Fed Vice Chair Clarida throws cold water on traders pricing in a rate cut

Key Points
  • Fed Vice Chairman Richard Clarida said Thursday that he doesn't think there's a high level of expectation for a rate cut.
  • His remarks, made in a CNBC interview, come as futures markets indicate than an easing could come by June or July.
  • Clarida added that the U.S. economy  is "strong" though the coronavirus presents a risk.
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Fed's Clarida: I don't think most market participants are pricing in rate cut

Federal Reserve Vice Chairman Richard Clarida doused talk of a rate cut, saying in an interview Thursday with CNBC that he doesn't think most market participants really expect one or that it is noted.

"Market pricing for rate cuts is a little tricky, because there's market expectations for rates, there also can be term and liquidity premiums," the central bank official told CNBC's Steve Liesman during a "Squawk Box" interview.

Futures contracts are pointing to a rate reduction as soon as June or July and no later than September, according to various indicators.

However, Clarida said economists surveyed by Bloomberg largely do not see the Fed easing this year, a view that he gives strong weight.

"I don't think when you ask folks they're pricing in that rate cut, even though market pricing might suggest that," he said.

Stock market futures took a turn lower as Clarida spoke.

Coronavirus not impacting policy yet

Fed officials at their past two meetings voted to hold the line on the central bank's benchmark rate, which is now targeted in a range between 1.5% and 1.75%. Minutes released Wednesday from the Jan. 28-29 Federal Open Market Committee meeting indicated that members believe policy is appropriate for now absent a significant change in economic conditions.

The record U.S. economic expansion continues to hum along, with the unemployment rate around a 50-year low, inflation contained and manufacturing surveys — the latest being Thursday morning's release from the Philadelphia Fed —indicating the the sector is emerging from a tariff-induced contraction in 2019. Stocks also are continuing their meteoric rise and are in a record-setting bull market.

Clarida reiterated that the "fundamentals in the U.S. are strong" though he said Fed officials are monitoring risks, in particular the coronavirus.

"It's obviously something that is probably going to have a noticeable impact on Chinese growth in the first quarter," he said.

However, there's no indication at this point that it will impact policy.

"What are would be looking for is some body of evidence that suggests that we need to make a material reassessment of our outlook, and certainly we have not done that yet," Clarida said. "But we are monitoring, because China is a huge part of our economy."

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Watch CNBC's full interview with Federal Reserve Vice Chair Richard Clarida