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REPEAT: MNI POLICY:Richard Clarida Confirmed As Fed Vice Chair
Repeats Story Initially Transmitted at 21:41 GMT Aug 28/17:41 EST Aug 28
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
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.