Fed Vice Chair Richard Clarida says data will determine the future path of rate hikes.

Speaking in New York on Tuesday, Clarida did not commit the Fed to a certain number of rate hikes before wrapping up the years-long policy of “accommodative” interest rates. Instead, Clarida said that the Fed needs to be more flexible in setting its interest rates the farther and farther away it gets from zero-bound interest rates.

“As you move further away from zero and you move towards the range of the vicinity estimates for the ultimate destination, I just think it’s intuitive that you need to become more data dependent,” Clarida said.

Noting that the Fed is always using data in its decision-making, Clarida said the ambiguity around where the long-run neutral rate of the economy — often referred to as r* — means that data is more important for the Fed’s efforts in determining where to stop its path of gradual rate hikes.

In a note, Morgan Stanley wrote that the speech indicates how “raising rates gradually allows policymakers to monitor the data closely to guide their views.”

In recent months, Fed speakers and market commentators have shared different estimates on when the economy will reach its neutral rate and no longer need the promise of increases or decreases in the interest rate.

Clarida said the biggest challenge is estimating that neutral rate, which he saw as a moving target.

“I would expect to revise my estimates of r* and [the unemployment rate consistent with maximum employment] as appropriate if incoming data on future inflation and unemployment diverge materially and persistently from my baseline projections today,” Clarida said.

His outlook on the economy was still positive. He said the U.S. economy has shown “strong growth” and said the job market has been “surprising on the upside for nearly two years.” On inflation, which he said he has been watching closely, he saw the Fed as close to its 2% objective especially when measuring PCE, but said the TIPS market might be showing inflation running at “somewhat less” than its target.

Clarida’s remarks come ahead of the December Federal Open Market Committee where the central bank is expected to raise rates one final time for 2018. The Fed has already raised rates three times this year, to its current target range of between 2% to 2.25%.

Clarida is the first of several FOMC voters scheduled to speak this week; Atlanta Fed President Raphael Bostic, Fed Chair Jerome Powell, and New York Fed President John Williams will speak Tuesday, Wednesday, and Friday respectively.

Fed Chair Jerome Powell is expected to speak Wednesday at an Economic Club of New York luncheon, where market observers will pay close attention to his comments on how close he thinks the economy is to its neutral rate.

Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.

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