Asks how Fed policy might change under incoming Chair Kevin Warsh.
Jonathan
Richard Clarida
Warsh has been critical of Fed practice on three dimensions: balance sheet size, credit allocation in mortgages, and forward guidance. Over time, the Fed could adjust policy along all three dimensions.
Asks what specific changes Clarida would like to see and what Warsh will ultimately change, starting with communication and the balance sheet.
Jonathan
Richard Clarida
It's possible to run successful monetary policy without forward guidance, as Volcker and Greenspan did. The Fed should have a conversation about the costs and benefits of forward guidance, which could mean changes to the 'dots' or more.
Questions if this means bespeaking the dots, limiting other Fed members' speeches, and whether it will be the 'Warsh Fed' or a different dynamic with likely dissents.
Lisa
Richard Clarida
It will be the 'Warsh Fed', but the Chair only has one vote and must work with the committee to make changes. While the Chair usually gets their way, history shows chairs have been outvoted.
Asks about Treasury Secretary Scott Bessent's role and potential 'soft veto' over Warsh's balance sheet decisions.
Lisa
Richard Clarida
The Fed's balance sheet is consolidated with Treasury. It's appropriate to have a discussion about balancing objectives without impinging on monetary policy. The Fed could run policy with a shorter duration portfolio, as pre-GFC.
Asks for a timeline on balance sheet changes, noting the Treasury Secretary said nothing would happen quickly.
Annmarie
Richard Clarida
Given the Fed has talked about this for 15 years, it may be a very long timeline. The Fed has decided not to sell securities during QT, unlike other central banks, but these ideas have been in conversation.
Asks about a chart showing Warsh's rhetoric changing with the political party in the White House, questioning if he's a 'political animal'.
Annmarie
Richard Clarida
Didn't see the chart. The Powell Fed has been cutting rates, and the December dots showed the committee expected cuts. Warsh likely sees the economy as the Fed did in December. He wasn't entirely complimentary of the Powell Fed either.
Asks for reaction to Torsten Slok's note that the US economy will take off later this year, changing conversation from Fed cuts to hikes.
Jonathan
Richard Clarida
There is an upside case for the economy this year due to tech capex boom, tax cuts, and foreign companies building in the US. If we get an economic boom, especially with sticky inflation, rate hikes may become part of the conversation.