Fed's Clarida sounds very dovish note on policy outlook

The US central bank's second-in-charge sounded quite a 'dovish' note on Thursday evening, making the case for the central bank to offset slower growth overseas and "materially" tighter financial conditions if they are sustained.

Indeed, he was arguably among the most dovish of recent Fed speakers thus far.

In remarks prepared for a speech at New York University, the vice-chairman of the Federal Reserve, Richard Clarida, also said it was not yet clear whether inflation had returned to 2.0% on a sustinable basis.

"Notwithstanding strong economic growth and a low unemployment rate, inflation has surprised to the downside recently, and it is not yet clear that inflation has moved back to 2 percent on a sustainable basis," he said.

"As I consider what, if any, adjustment to our policy stance is warranted to achieve and sustain our dual-mandate objectives, I will closely monitor the incoming data on inflation expectations as well as actual inflation."

He also gave a nod to concerns expressed by some market observers regarding the possible negative impact that the central bank's balance sheet run-off might have.

"If we find that the ongoing program of balance sheet normalization or any other aspect of normalization no longer promotes the achievement of our dual-mandate goals, we will not hesitate to make changes."