Clarida points out that his inflation outlook faces upside risks.
The Fed vice chairman also warned that the Delta variant posed a downside risk to the economy.
Richard Clarida, vice chairman of the Federal Reserve, said on WednesdayIf the economy works as policy makers expect, the Fed is expected to start raising interest rates in 2023.
"the necessary conditions for raising the target range of the federal funds rate will be met by the end of 2022," he said in a speech at the Peterson Institute for International Economics webinar. "
The Fed has said it will keep short-term interest rates near zero until the labour market maximizes employment and inflation rises to 2 per cent and is expected to moderately exceed that level for some time. In economic forecasts released in June, most policymakers expect interest rates to rise twice by the end of 2023.
"current monetary and fiscal policies should continue to support the strong expansion expected in economic activity this year, but the rapid spread of the Delta variant among a significant portion of the population that has not yet been vaccinated is clearly a downside risk to the economic outlook," Clarida said.
He said he expected the imbalance between supply and demand, which is driving up prices, to dissipate over time, while inflation expectations would remain stable. But he added, "my inflation outlook faces upside risks."
Inflation soars
As the economy reopened, inflation soared more than the Federal Reserve and most private forecasters had expected. The US personal consumption expenditure price index rose 4 per cent in June from a year earlier.
Mr Clarida said his forecast for the first rate hike in 2023 was in line with the 2 per cent average inflation target adopted by the Fed last year and reflected the reality of expansionary fiscal policy.
Clarida did not participate in the ongoing public debate among policy makers about when to start scaling back asset purchases, but reiterated the FOMC's language that the issue would continue to be discussed at future policy meetings.
Clarida's term on the Fed board expires in January. Fed watchers do not expect President Joe Biden to re-nominate him for re-election.