Beckner: Fed To Have Solid Leadership Team With Clarida As Vice Chair

17 April, 2018



By Steven K. Beckner

With President Trump set to nominate Richard Clarida as Federal Reserve Vice Chairman two weeks after the naming of John Williams as New York Federal Reserve Bank president, Chairman Jerome Powell can look forward to soon having an able leadership team.

Powell brought good qualities as Janet Yellen's successor, but a PhD economist he is not. He needed two solid lieutenants with those credentials -- not just depend on advice from career Fed staffers. He will now have that, assuming Clarida is confirmed by the U.S. Senate.

Neither Clarida nor Williams come to their new jobs without certain preconceptions. Clarida, a Harvard-trained Columbia University professor, PIMCO analyst and Treasury official under President George W. Bush, largely focused on controlling inflation before the financial crisis, but afterwards came around to advocating quantitative easing and believing a slowdown in GDP growth potential has lowered the longer run "neutral" federal funds rate.

But Clarida should not be considered a doctrinaire dove. While he has said the Fed should not "overreact" to fiscal stimulus, he has also cautioned Wall Street about being "a little too relaxed" about inflation.

As San Francisco Fed President, Williams co-authored, with Fed Board Director of Monetary Affairs Thomas Laubach, research finding the real equilibrium short-term interest rate (r*) had fallen to zero, leading to the assumption that the neutral funds rate had also plunged. Nevertheless, Williams, who will succeed William Dudley June 18, shed a "dovish" reputation to help lead the way toward funds rate normalization.

Williams is "not as dovish" as one-time boss Yellen and "steers toward the middle," a long-time colleague confided.

Clarida and Williams have each mused about a possible four funds rate hikes this year.

As circumstances change, sound economists' policy prescriptions change with them, and a Fed insider told me both "will provide good counsel to Powell" -- somewhat lacking since Stanley Fischer's departure.

Trump also plans to nominate Kansas State Bank commissioner Michelle Bowman, whose confirmation will presumably be non-controversial. The nomination of more hawkish former Richmond Fed chief economist Marvin Goodfriend faces tougher sailing. If Bowman, Clarida and Goodfriend all get confirmed, the Board would be up to six members -- still one shy of its full complement.