(Bloomberg) — Federal Reserve Vice Chair Richard Clarida said the “necessary conditions” to raise the U.S. central bank’s benchmark lending rate from near-zero will probably be in place at the end of next year.

“While we are clearly a ways away from considering raising interest rates,” Clarida said in remarks prepared for delivery Monday to a symposium on monetary policy hosted by the Brookings Institution in Washington, “I believe that these three necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022,” he said, referring to the labor market and inflation tests laid out by the Fed for liftoff.

Last week, Fed officials left interest rates at near zero. They announced that they will begin to reduce their huge asset purchase program this month. This would be in accordance with a plan that would end the program by mid-2022. They’ve said the taper decision did not imply a direct signal on interest rate policy. Concerned by the high rate of inflation, some officials suggested that rates could be increased as soon after the taper is over.

Clarida said he expected inflation pressures to ease “as the labor market and global supply chains eventually adjust and, importantly, do so without putting persistent upward pressure on price inflation and wage gains adjusted for productivity.” U.S. central bankers in August 2020 adopted a new approach to the central bank’s goals for employment and price stability. In order to correct years of undershooting, inflation was set at 2% average. 

Officials at the Fed have not yet defined the period for which an average should exist. The maximum employment objective was also redefined as a “broad-based and inclusive goal,” and officials said they would no longer prejudge the level maximum employment as they set policy –although they still produce a forecast of an unemployment rate consistent with stable prices. The long-term estimate was 4.4% as of September.  Clarida stated that inflation risks are positive and that he doesn’t want another year with inflation exceedingly high like 2021. Inflation by the Fed’s preferred measure rose 4.4% for the 12 months ending September, and minus food and energy it rose 3.6%.

“Inflation so far this year represents, to me, much more than a ‘moderate’ overshoot of our 2% longer-run inflation objective, and I would not consider a repeat performance next year a policy success,” he said.

As economies recover from pandemics, inflation is putting a test on central bank strategies in Canada, Britain and the Eurozone. 

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