Episode summary
How a Former Fed Vice-Chair Is thinking About the Next Fed Chair | Odd Lots
Odd Lots
· · 51 min · Hosts: Tracy Alloway, Joe Weisenthal · Guests: Richard Clarida
Summary
Richard Clarida argues that Kevin Warsh would be a plausible Fed chair because he could work effectively with Treasury Secretary Scott Bessent, even if their relationship would need guardrails to protect Fed independence. He says the Fed has always needed some coordination with Treasury on market liquidity, bank regulation, and crisis management, and that the chair’s real power is persuasion inside a 12-member committee rather than unilateral control.
Clarida also reframes Warsh’s reputation as an inflation hawk. He says Warsh’s 2008–09 criticism of the Fed should be judged in the context of the fog of crisis, when forecasting inflation was unusually hard, and he notes that the existing committee already leans toward at least one more rate cut this year. On communication, Clarida says forward guidance and the dot plot were useful in the zero-rate era, but they are not sacred tools and should be weighed against their costs.
On the balance sheet, Clarida says Warsh’s critiques are real but operational change would be slow, complicated, and tied to bank reserves and Treasury-federal balance-sheet coordination. He expects more bond-market volatility if the Fed uses less forward guidance, and he thinks markets could move toward more normal pre-GFC rate volatility rather than the unusually suppressed conditions of the last decade.
Key takeaways
- Clarida says Warsh is a sensible pick partly because he could work constructively with Scott Bessent on Treasury-Fed coordination.
- Clarida argues the Fed chair’s main lever is persuasion, because rate decisions still require an affirmative vote from the committee.
- Clarida thinks reducing forward guidance would likely raise interest-rate volatility, especially in the bond market.
- Clarida says Warsh’s balance-sheet critique is consistent, but any new accord on size or composition would be a complicated, multi-step process.
- Clarida sees AI as potentially disinflationary over time, but near-term capex could raise demand before productivity gains arrive.
Notable quotes
“I think it's a very sensible choice. It it makes sense along important dimensions”
“the power of the Fed chair is the power of persuasion because at the end of the day he or she only has one vote”
“It is perfectly possible to conduct a very successful monetary policy without any forward guidance”
“I think the most robust prediction I would make is it would it would in increase to some extent market volatility in particular interest rate volatility”
“my my sense is really that his his critique is that a lot of economic models in macro tend to to put a lot of emphasis on on the demand side of the economy”
How the episode opens
Bloomberg Audio Studios podcasts, radio news. — Hello and welcome to another episode of the Odd Thoughts podcast. I'm Tracy Aloway — And I'm Joe Weisenthal. — So Joe, Trump nominated Kevin Worsh to be Fed Chair last week. We've been talking about it on the show. Obviously, this has big market implications, but I'm starting to think that the sociological questions and aspects of this are kind of more interesting.
I'm so intrigued by the constellation of people who have come out either in support or opposition of this name. It is not like any other nominee that I can recall where you have fairly sort of mainstream even sort of liberal names like Jason Ferman or Gita Goponath uh saying there's a great pick etc and then you have Paul Krugman and Neil Da saying this is a terrible pick and so forth. It is it it cuts in ways that I would not have necessarily anticipated not like any other Trump pick that I recall.
Yeah, it is very split and it feels like there's a split within Worsh's own thinking as well. Right? Because here we have a guy who has talked about wanting to overhaul the Fed, right? And even break some heads, I think was a direct quote that we've mentioned before. He has given a speech that is literally titled an ode to independence at the central bank. But
At the same time, there's a big question mark about how and why he has suddenly seemingly gone from an inflation hawk to someone who's advocating for low rates. — Totally. And of course I think I mean for you know just to be blunt this would have been something that any nominee from this administration to some extent there would have been question marks around because you know obviously Trump has been very critical of uh Jerome Powell despite the fact that he nominated him himself and it's clear that he wants a low rates now kind of guy in there.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed chair role
- monetary policy communication
- bond market volatility
- central bank regime change
- fed independence and politics
Companies and tickers mentioned
- Pimco
Watch the episode
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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