Fed Needs Clear Inflation Target and Messaging, Clarida Says

Summary

Former Fed Vice Chairman Richard Clarida discusses the recent bond market selloff, the importance of clear inflation targeting and communication, and the widening K-shaped economy. He explains the "Hall of Mirrors" problem between central banks and bond markets, and previews potential Fed messaging at Jackson Hole.

• Richard Clarida analyzes the selloff in the 30-year Treasury yield and its drivers beyond the Fed.
• He observes that break-even inflation has remained stable or slightly lower since Kevin Warsh became Fed Chair.
• Clarida stresses that an inflation-targeting central bank must be clear about what it targets.
• He describes the circular feedback loop between the Fed and the bond market, known as the Hall of Mirrors problem.
• He acknowledges a K-shaped economy with growing divergence between asset owners and non-owners over the past six years.
• The discussion covers Fed communication at Jackson Hole and the possibility of new inflation measures being considered.