MNI POLICY: Richard Clarida Confirmed As Fed Vice Chair

By Sara Haire

     WASHINGTON (MNI) - The U.S. Senate, late on Tuesday afternoon, confirmed

Richard Clarida by a 69-26 voice vote to the powerful Vice chair position of the

Federal Reserve, now solidifying the centrist-minded troika between Fed Chair

Jay Powell, New York Fed Bank President John Williams, and now Clarida.

     Clarida, having been both a managing director at Pimco and an economics

professor at Columbia University, strikes a balance between Powell's finance and

banking background and Williams' economics background.

     Recent remarks from Chair Powell suggest the Federal Reserve will continue

gradually raising interest rates and the confirmation of Richard Clarida should

not cause the Fed to go off that course.

     However, Clarida has been vocal about the potential for an overshoot in

inflation, the low neutral rate, and the Fed's inflation-targeting framework.

     In late last year, Clarida flagged the possibility of an inflation

overshoot as fiscal stimulus was expected to boost growth and his prediction

seems to be coming true as the most recent CPI numbers indicate inflation is on

the rise.

--THOUGHTS ON R-STAR

     New York Fed Chief John Williams previously did research on r-star that has

propelled the conversation on where the neutral interest rate may reside further

into the spotlight. Since Williams, and now Clarida both expect r-star to remain

low, this should bolster the argument for gradual interest rate increases while

the economy is strong.

     There are varying views on the Fed about where the neutral interest rate is

and how the Fed should proceed as they continue to raise interest rates closer

to neutral territory.

     Following the December tax cut announcement, Clarida said in a Bloomberg

interview that given a stimulated economy, there could be four rate hikes during

2018. However, he did caution that inflation would have to run consistently

higher than the Fed's 2% symmetric objective.

--GLOBAL IMPLICATIONS

     Clarida released an NBER paper in June 2017 that focused on global factors

affecting neutral policy rates and the implications. In it, Clarida explained

that the rules that may be required for global cooperation for monetary policy

would be hard to implement without 'sacrificing the credibility of the inflation

target and the policy regime itself."

     Clarida seemed to propose while global cooperative monetary policy is

likely difficult to be obtained, it is worth exploring in this economic climate.

The current path of monetary policy suggests there will be added divergence in

global interest rates in the very near future, which could cause more concern

given the risk from emerging economies and the capital outflows.

--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com

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