Clar­ida picked as Fed vice-chair; Pow­ell’s in­ner cir­cle takes shape

Business World - - BANKING & FINANCE -

US PRES­I­DENT Don­ald Trump an­nounced his in­ten­tion to nom­i­nate Richard Clar­ida, a re­spected mone­tary econ­o­mist and Pa­cific In­vest­ment Man­age­ment Co. global strate­gic ad­viser, as vicechair­man of the Fed­eral Re­serve.

In a White House state­ment re­leased Mon­day, Trump also an­nounced plans to nom­i­nate Kansas State Bank Com­mis­sioner Michelle Bow­man as Fed gover­nor rep­re­sent­ing the in­ter­ests of com­mu­nity banks. Both se­lec­tions are sub­ject to con­fir­ma­tion by the US Sen­ate. The seven-seat Fed Board cur­rently has four va­can­cies.

If con­firmed, the 60-year-old Clar­ida would bring a mix of skills to the cen­tral bank’s No. 2 po­si­tion. These in­clude knowl­edge of fi­nan­cial mar­kets gained dur­ing more than a decade at as­set man­ager Pimco, to in­sights into how Wash­ing­ton works from his time at the Trea­sury Depart­ment un­der Pres­i­dent Ge­orge W. Bush.

His nom­i­na­tion also fills out the lead­er­ship team of new Fed Chair­man Jerome Pow­ell fol­low­ing the se­lec­tion ear­lier this month of John Williams as the next head of the bank’s pow­er­ful New York branch. Pow­ell, who doesn’t have a Ph.D. in eco­nom­ics, will now have two topflight economists as his wing­men. A long-time pro­fes­sor at Columbia Uni­ver­sity, Clar­ida would re­place Stan­ley Fis­cher, who stepped down as vice-chair­man in Oc­to­ber.


“I would de­scribe him as cen­trist and prag­matic,” said New York Uni­ver­sity pro­fes­sor Mark Gertler, who has co-writ­ten a num­ber of re­search pa­pers with Clar­ida. “He has a nice bal­ance be­tween un­der­stand­ing and con­tribut­ing to what the aca­demic lit­er­a­ture has to say and very prac­ti­cal, real world knowl­edge.”

With the an­nounce­ment, which was first re­ported by the Wall Street Jour­nal, Trump ex­tended his over­haul of the Fed’s Board of Gover­nors. In ad­di­tion to Pow­ell and Vice- Chair­man for Su­per­vi­sion Ran­dal Quar­les, Trump has also picked econ­o­mist Marvin Good­friend to be a gover­nor. Good­friend was cleared by the Sen­ate Bank­ing Com­mit­tee on Feb. 8 but his

nom­i­na­tion has yet to have a vote be­fore the full Sen­ate.

Clar­ida will join the Fed as it pur­sues a grad­ual se­ries of in­ter­est- rate hikes and a re­duc­tion in its bond hold­ings un­der the aus­pices of Pow­ell, who took the helm of the US cen­tral bank in Fe­bru­ary. Pow­ell said in a speech ear­lier this month that the out­look for in­fla­tion and em­ploy­ment sup­port fur­ther grad­ual rate in­creases.

The vice chair­man plays a crit­i­cal sup­port role for the cen­tral bank’s leader, and of­ten heads spe­cial projects at the re­quest of the chair. Along with the pres­i­dent of the New York Fed, who acts as the cen­tral bank’s eyes and ears on Wall Street, the deputy typ­i­cally forms a key vot­ing bloc with the chair­man on both pol­icy and strat­egy.


Clar­ida “is just what Jay needs,” said Tim­o­thy Adams, pres­i­dent of the Wash­ing­ton-based In­sti­tute of In­ter­na­tional Fi­nance, re­fer­ring to Pow­ell by his nick­name. “He’s well re­spected in the fi­nan­cial in­dus­try, well re­spected in academia and has got a team men­tal­ity.”

Since 2014, Clar­ida has led Pimco’s an­nual sec­u­lar fo­rum that brings in for­mer pol­icy mak­ers and other high-pow­ered out­siders to help the New­port Beach, Cal­i­for­nia-based firm de­cide how to man­age its $1.75 tril­lion in as­sets.

He was an early pro­gen­i­tor of the so-called “new neu­tral” con­cept cham­pi­oned by Pimco that ar­gues that equi­lib­rium global in­ter­est rates — ones that nei­ther spur nor sti­fle eco­nomic growth — are sig­nif­i­cantly lower than they were in the past.


In a Dec. 13 Bloomberg Tele­vi­sion in­ter­view, he reck­oned that rate in the US is now closer to 2% than to 3%. Fed pol­icy mak­ers, in con­trast, peg the neu­tral rate at 2.9%, ac­cord­ing to the me­dian pro­jec­tion of of­fi­cials in March. Williams, who is cur­rently pres­i­dent of the San Fran­cisco Fed, has sug­gested it could be 2.5%.

In the Bloomberg in­ter­view, Clar­ida saw a chance that the Fed could raise in­ter­est rates four times this year and that in­fla­tion could even­tu­ally over­shoot the cen­tral bank’s 2% tar­get, though he said that was not his base case.

“We could get four hikes if the growth in the econ­omy is stronger be­cause of the tax cuts,” he said. “But im­por­tantly, also, you’d ac­tu­ally need some in­di­ca­tion that in­fla­tion is mov­ing up too quickly for the Fed’s taste.”

Clar­ida was in the Trea­sury Depart­ment on Sept. 11, 2001, the day that al- Qaeda ter­ror­ists struck the World Trade Cen­ter in New York and the Pen­tagon just out­side Wash­ing­ton. “We were evac­u­ated out of Trea­sury,” he told Bloomberg ra­dio in an in­ter­view broad­cast on Aug. 5. “It was ac­tu­ally quite scary.”


Be­sides deal­ing with the fi­nan­cial af­ter­shocks of the at­tacks, Clar­ida also helped for­mu­late the Bush ad­min­is­tra­tion’s re­sponse to the En­ron Corp. and WorldCom Inc. ac­count­ing scan­dals. He left his post as as­sis­tant Trea­sury sec­re­tary for eco­nomic pol­icy in May 2003.

A grad­u­ate of Har­vard Uni­ver­sity in 1983 with a Ph.D. in eco­nom­ics, Clar­ida has con­cen­trated his aca­demic re­search on mone­tary pol­icy, cur­rency ex­change rates and in­ter­na­tional cap­i­tal flows.

He’s per­haps best known for his work on “dy­namic sto­chas­tic gen­eral equi­lib­rium” com­puter mod­els that try to pre­dict how the econ­omy will re­act to shocks and changes in pol­icy and which are widely used by the Fed and other cen­tral banks.

Clar­ida has also done ex­ten­sive re­search into mone­tary pol­icy rules, such as those de­vel­oped by Stan­ford Uni­ver­sity pro­fes­sor John Tay­lor, and their ap­pli­ca­tion world­wide.

In a June 2017 pa­per, he wrote that “best prac­tice mone­tary pol­icy has been im­ple­mented with ref­er­ence — if not with me­chan­i­cal ad­her­ence — to in­ter­est rate feed­back rules.”

Clar­ida, who’s taught at Columbia since 1988 and once served as chair­man of its eco­nomic depart­ment, also has ex­per­tise in cur­ren­cies. In the late 1990’s, he helped Credit Suisse Group AG build an econo­met­ric model of the mar­ket . He also au­thored a 60-page pa­per on ex­change rates af­ter the Asian fi­nan­cial cri­sis.

A self-de­scribed “avid, am­a­teur mu­si­cian,” Clar­ida plays acous­tic gui­tar and bass and has a stu­dio in his Con­necti­cut home.

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