Clarida: This Will Be the Warsh Fed

Summary

Richard Clarida, former Federal Reserve Vice Chairman, discusses how Kevin Warsh could reshape the Federal Reserve if confirmed as chair. Clarida expects a Warsh Fed but says changes to balance sheet policy, forward guidance, and policy rules would take time and require committee consensus. He also sees an upside case for the U.S. economy this year, with tech capex, tax cuts, and foreign manufacturing investment; if inflation does not return to target, rate hikes could re-enter the conversation.

• Clarida describes Kevin Warsh as accomplished and respected, with a clear paper trail criticizing Fed practices.
• Warsh's criticisms include the Fed's large balance sheet, credit allocation and mortgage holdings, forward guidance, and lack of policy rules.
• Clarida expects it will be the Kevin Warsh Fed, but says the chair must persuade a 12-member committee and changes will take time.
• Clarida says Fed balance sheet and profitability are ultimately consolidated with Treasury, making Fed-Treasury coordination complex.
• He sees an upside case for the U.S. economy from tech capex, tax cuts, and foreign companies building U.S. plants.
• If an economic boom keeps inflation above target, rate hikes could become part of the policy conversation.
• He does not think Warsh's dovishness or hawkishness can be inferred solely from political rhetoric.