Fed Won’t Lift Target in 2010, Pimco’s Clarida Says

Feb. 23 (Bloomberg) -- The Federal Reserve won’t raise its target lending rate while unemployment is still high, according to Richard Clarida, global strategic adviser at Pacific Investment Management Co.

“The Fed’s own forecast is for unemployment at year-end to be north of 9 percent,” said Clarida in a Bloomberg Radio interview today. “I just don’t see the Fed hiking until 2011.”

Pimco used the term “new normal” last year to describe what the Newport Beach, California-based company, the world’s largest bond fund manager, forecasts as a period of slower economic growth, high unemployment and heightened government regulation. Fed policy makers said last month that while consumer spending has picked up, it’s partly “constrained by a weak labor market.”

The Fed can only let its $2.26 trillion balance shrink to its level before the September 2008 collapse of Lehman Brothers Holdings Inc. by selling the securities it purchased, something the central bank doesn’t want to do, Clarida said.

Instead, the Fed will let the securities it purchased mature and “roll off,” according to the Pimco strategist. He said the central bank will carry out “plumbing” maintenance including repurchase operations.

Policy makers unanimously agreed at their January meeting that the Fed’s balance sheet will need to decrease “substantially over time” and return the Fed’s holdings to just Treasuries, according to the minutes of the Jan. 26-27 Federal Open Market Committee meeting. Some policy makers pushed to start selling assets in the “near future.”

To Lift Economy

The Fed and U.S. agencies have lent, spent or guaranteed $9.66 trillion to lift the economy from the worst slump since the Great Depression, according to data compiled by Bloomberg.

“The bottom line is they’re trying to do something that’s never been done before, which is to normalize policy without reducing the monetary base,” he said.

The number of Americans filing first-time claims for unemployment insurance unexpectedly increased in the week ended Feb. 13, the Labor Department reported Feb. 18.

Minneapolis Fed President Narayana Kocherlakota said in text of a speech two days earlier in St. Paul, Minnesota, that the unemployment rate is unlikely to fall below 9 percent this year and 8 percent in 2011.