Warsh's 'Ambitious Agenda' Needs Broad Market Understanding: Clarida

Summary

Former Fed Vice Chair and Pimco adviser Richard Clarida discusses Fed Chair Kevin Warsh's ambitious policy agenda and the importance of clear inflation targeting. He cautions that reviewing alternatives to the PCE index could create uncertainty without clear communication. The conversation also covers the interdependence of the bond market and central bank policy, forward guidance, and Jackson Hole expectations.

• Clarida addresses Warsh's suggestion for a review of alternatives to the PCE inflation index.
• Acknowledges that task forces could recommend CPI, PPI, or an average, raising communication challenges.
• Emphasizes that a ten-year Treasury yield is influenced by Fed expectations, global growth, and geopolitical risks.
• Describes the 'hall of mirrors' problem where the central bank and bond market each react to one another.
• Notes that forward guidance requires the market to broadly understand the Fed's reaction function.
• Says it is too early to predict specific announcements from the Jackson Hole symposium.
• Frames central banking as combining art and science, especially under a new chair with an ambitious agenda.