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Clarida Is Likely Pick As No. 2 For Powell -- WSJ

2 Mar 2018 7:32 am
By Nick Timiraos and Harriet Torry 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 2, 2018).

President Donald Trump is likely to nominate Columbia University economist Richard Clarida to become vice chairman of the Federal Reserve Board, according to people familiar with the matter.

Mr. Clarida is a Republican economist whom colleagues describe as more of a pragmatist than an ideologue.

Such a temperament fits the mold of Fed Chairman Jerome Powell, a lawyer and former investment executive who began a four-year term as the central bank's leader in February.

Mr. Powell is the first Fed leader in more than three decades without a Ph.D. in economics. The White House has been eager to select a monetary policy specialist as his second-in-command.

Mr. Clarida is managing director and global strategic adviser at Pacific Investment Management Co. and since 1988 has been an economics professor at Columbia, including four years as department chair.

He served at the Treasury Department as assistant secretary for economic policy during the George W. Bush administration from 2002 to 2003, a position that required Senate confirmation.

Mr. Clarida didn't respond to a request for comment Thursday.

Mr. Clarida is well regarded by economists on both sides of the aisle. He is "in the basket of reasonable, conservative, Republican economists who are mainstream," said Princeton economist Alan Blinder, a former Fed vice chairman nominated by President Bill Clinton.

The Wall Street Journal reported in December that Mr. Clarida had interviewed with the White House for the post. The Journal reported in February that he had also met with Mr. Powell.

Mr. Clarida returned to the White House recently to meet with Mr. Trump and Vice President Mike Pence, according to a person familiar with the matter.

If nominated and confirmed by the Senate, Mr. Clarida would fill out the top of the Fed leadership with two other Trump nominees -- Mr. Powell and Randal Quarles, sworn in last October as the Fed's vice chairman of bank supervision.

Mr. Quarles worked closely at the Treasury with Mr. Powell in the early 1990s and served at the Treasury with Mr. Clarida in the early 2000s.

The Obama administration looked at nominating Mr. Clarida for a seat on the Fed's seven-member board of governors in 2011 before he withdrew from consideration. President Barack Obama ultimately nominated Mr. Powell to fill the opening.

The vice chairman position has been vacant since October, when Stanley Fischer resigned for personal reasons. The Fed's board has four vacancies.

Market participants have been eager to see whom the White House picks because that person will help Mr. Powell manage decisions this year over how much the Fed should raise rates. The No. 2 official could also coordinate debates concerning long-run strategy, such as a review of the Fed's 2% inflation target.

Mr. Clarida would be Mr. Trump's fourth nominee to the Fed's board, following Mr. Powell, Mr. Quarles and Carnegie Mellon University economist Marvin Goodfriend, who is awaiting Senate confirmation.

Mr. Goodfriend, nominated last November, faces an uncertain fate in the Senate because of opposition from most Democrats and Sen. Rand Paul (R., Ky.).

Other candidates the White House has spoken to about the vice chairman job include San Francisco Fed President John Williams, Cleveland Fed President Loretta Mester and former Pimco CEO Mohamed El-Erian. Lawrence Lindsey, a former Bush administration economist, withdrew from consideration in February.

Mr. Powell began his tenure as central-bank chairman facing an unusually high number of vacancies on the Fed board. The White House has yet to submit nominees for the three other open board seats.

Mr. Trump was unusually critical of the central bank during his 2016 election campaign, but has avoided nominations that would radically reshape the Fed's policy leanings. He has mostly selected establishment Republicans with private-sector and government experience who aren't regarded as partisans.

Mr. Clarida, like Messrs. Powell and Quarles, is viewed by people who closely follow the Fed as someone who would likely maintain the central bank's collegial and consensus-oriented culture. He wouldn't be expected to advocate for major policy U-turns.

While the Trump administration has advocated a rollback of financial rules, Mr. Trump's Fed nominees have largely supported more targeted tweaks to existing regulations.

On regulation, Mr. Clarida likely would be more disposed to cutting red tape for financial institutions than former Fed Chairwoman Janet Yellen but is not as pro-deregulation as "some of the real conservatives in the Republican Party," said Mr. Blinder.

Mr. Clarida has published extensive academic research on monetary policy, inflation and macroeconomics. From his perch at Pimco, Mr. Clarida has also commented frequently on Fed policy.

Mr. Clarida has quibbled with some Fed communications in recent years but hasn't been as critical of the central bank's policy moves as other conservative economists.

Mr. Clarida was largely supportive of efforts last year by then Fed Chairwoman Yellen to gradually lift interest rates and slowly shrink the Fed's $4.5 trillion portfolio of bonds and other assets, which swelled during successive stimulus campaigns after the 2008 financial crisis. He compared the plan's slow ramp-up to a diet that calls for eating two desserts a day instead of three.

In 2015, he observed the Fed was likely to begin raising rates but could proceed extremely gradually due to dormant price pressures. "If the Fed loses confidence in the inflation forecast, this will influence the pace, and perhaps the timing, of the rate cycle," he wrote in International Finance, an academic journal.

In 2016, Mr. Clarida criticized the central bank for its communication strategy when it projected four quarter-percentage-point rate increases during the year but only moved once.

"The Fed has been all over the map, and I think markets are now in a mode to essentially ignore the Fed largely," he said on Bloomberg TV in September 2016.

After the Fed's most recent policy meeting in late January, Mr. Clarida said in a blog post the central bank had "reinforced the case for a hike in March and two more later this year, which likely suits Chair Yellen -- and soon-to-be Chairman Powell -- just fine."

Mr. Clarida's background includes stints as a visiting scholar at the Fed board in 1992, 1994 and 1997. He served on President Ronald Reagan's Council of Economic Advisers as a consultant and staff economist in the late 1980s. He also has worked as a consultant for the New York Fed and various Wall Street financial institutions.

Write to Nick Timiraos at nick.timiraos@wsj.com and Harriet Torry at harriet.torry@wsj.com

Corrections & Amplifications Jerome Powell began a four-year term as Federal Reserve chairman in February. An earlier version of this article incorrectly stated he started this month. (March 1, 2018)

(END) Dow Jones Newswires

March 02, 2018 02:32 ET (07:32 GMT)

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