Fed Nominee Clarida Fits the Powell Mold in Confirmation Hearing

(Bloomberg) -- Richard Clarida, President Donald Trump’s nominee for the No. 2 job at the Federal Reserve, spent most of his appearance before lawmakers Tuesday making his views almost indistinguishable from the U.S. central bank’s No. 1 official.

From his vision of financial regulation, to his take on Fed’s past use of bond purchases, to his view of the labor market, Clarida stuck to positions during Senate Banking Committee testimony that aligned with those of Fed Chairman Jerome Powell.

“The striking thing now about Fed leadership is how much they look like Jay Powell,” said Vincent Reinhart, a former Fed policy adviser who is now chief economist at BNY Mellon Asset Management.

Testifying together, Clarida and Fed governor nominee Michelle Bowman “showed themselves to be team players, understanding the script and understanding their roles,” Reinhart said.

Clarida told senators he supported regulators’ review of post-crisis banking rules, tailoring it when possible to be more efficient, but without eroding the safety of the financial system.

“There are opportunities to tailor regulations appropriately,” he said, adding that he put a priority on “preserving the substantial gains in resiliency and stability of our financial system”’ since the crisis.

Powell Similarity

That’s similar to Powell, who at his swearing-in ceremony in February pledged to “preserve the essential gains in financial regulation while seeking to ensure that our policies are as efficient as possible.”

Clarida also assured Rhode Island’s Jack Reed, a Democrat, that he wouldn’t focus exclusively on the very low unemployment rate in assessing the U.S. work force, but would monitor broad measures of employment -- a stock line for Fed officials.

Asked by Republican Pat Toomey from Pennsylvania about the Fed’s use of large-scale asset purchases to fight the most recent recession, Clarida again sounded very much like his would-be boss.

“My general feeling is that there are benefits and costs” to the policy known as quantitative easing, Clarida said. He said he thought its first use in 2008 “made sense,” but that “the benefits of QE diminished as more and more rounds were added.”

Transcripts of Fed policy meetings show Powell also had reservations about multiple rounds of quantitative easing. As officials discussed a third round of bond buying in September 2012, Powell said he supported the move “with a certain lack of enthusiasm.”

The hearing underscored that Clarida represented another mainstream pick for the Fed by Trump. Clarida, 60, would bring a set of respected academic and market credentials to the central bank.

Community Banks

Bowman, the state bank commissioner in Kansas, also offered cautious answers during the hearing, especially in her limited remarks on monetary policy. She spent more time on banking, decrying consolidation in the industry that had caused the number of community banks to shrink dramatically over the past several years, and the regulatory issues that small banks faced.

“It’s important to understand the burden on a staff of three of implementing the same regulations that are applied to much larger banks,” she said.

Clarida, a Columbia University professor, is a prominent monetary economist and a global strategic adviser at Pacific Investment Management Co. He also served at the Treasury Department in the George W. Bush administration. He earned his Ph.D. in economics from Harvard University.

Bowman is a fifth-generation banker who worked at Farmers & Drovers Bank in Council Grove, Kansas. She also served in government for several years in Washington, first on the staff of former Kansas Senator Bob Dole and later as deputy assistant secretary and policy adviser to former Homeland Security Secretary Tom Ridge. She earned a law degree at Washburn University in Topeka, Kansas.

Though at least one Democrat, Elizabeth Warren of Massachusetts, appeared unsatisfied by Clarida’s remarks on regulation, neither he nor Bowman appear to have attracted any significant opposition to their nominations. That stands in contrast to the confrontation that unfolded when Carnegie Mellon Professor Marvin Goodfriend, also nominated by Trump to serve on the Fed Board of Governors, testified in January.

Goodfriend struggled to respond to a grilling by Democrats over his monetary policy views. He was ultimately approved by the committee, but on a strict party-line vote. That, combined with the subsequent announcement by Republican Senator Rand Paul of Kentucky that he would oppose Goodfriend, made his approval by the full Senate uncertain, and his nomination hasn’t yet come to the floor.

Following Tuesday’s hearing, Senate Banking Chairman Mike Crapo of Idaho said Goodfriend’s nomination was still alive. If all three Fed nominees are eventually confirmed, that would leave only one remaining vacancy at the seven-seat Board of Governors.

To contact the reporters on this story: Christopher Condon in Washington at ccondon4@bloomberg.net, Craig Torres in Washington at ctorres3@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Scott Lanman

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