Vice Chair Clarida Isn’t Sure You’re Getting The Message

As a matter of course, we try to avoid commenting on intraday soundbites from Fed officials who aren’t named Jerome Powell because, in case you haven’t noticed, someone is on the tape with something pretty much every day.

There’s usually some discernible strategy, whereby the procession of speakers are trying to either walk back or reinforce the message from the latest FOMC meeting, and to the extent that strategy is identifiable, there’s some utility in documenting how it evolves over the course of a given week. But more often than not, intraday moves predicated on one soundbite or another are quickly faded or else overshadowed by an errant tweet from the only policymaker who really matters: Donald Trump.

But on Tuesday, Vice Chair Clarida showed up on Bloomberg TV and his comments are worth mentioning, because he went out of his way to reiterate Powell’s message from last week’s post-FOMC press conference.

Read more: ‘Plain English’ Goes Awry — Again

Following that presser, some analysts questioned whether Clarida and others would attempt to soften the blow from what was perceived as hawkish “plain English” from chair Powell. Suffice to say Clarida’s Bloomberg appearance did not serve that purpose.

“We think the US economy and monetary policy is in a good place right now”, he said, on the way to reiterating Powell’s contention that the Fed doesn’t “see a strong case to move rates in either direction”.

Clarida went on to acknowledge recent softness in inflation, but he doubled down on the “transitory” narrative. “[It’s been] on the soft side, but we think there are some temporary factors” at play, he said, before contending that “we think the policy we have in place and the outlook we have for the economy will be consistent with” getting inflation sustainably to 2%.

There’s nothing “new” there, per se, and that is indeed the problem. One of the first things we noted on Sunday evening following Trump’s out-of-the-blue trade escalation was that it came hot on the heels of Powell’s efforts to play down the odds of a so-called “insurance cut”.

There are three factors driving risk asset performance in 2019: 1) trade optimism, 2) central banks’ dovish pivot and 3) an inflection in China’s economy.

Point 1 is clearly in doubt and while central banks are still demonstrably dovish (and will doubtlessly remain so for the foreseeable future), it’s “never enough for the market” (as Powell put it in 2012). The Fed gave us an indefinite pause and an end-date for balance sheet runoff, but now folks want a cut. Anything short of that is perceived as marginally hawkish, which undercuts point 2 above. Of course, an escalation in trade tensions has the potential to undercut point 3. All of that together accounts for this:

To be clear, stocks were already on the back foot on Tuesday before Clarida’s remarks hit, but for the reasons outlined above, the vice chair did not help the general mood.

With the RBA on hold overnight (a relatively hawkish outcome even as it raises the odds of at least one cut later), China’s trade data on deck and the Trump administration seemingly dug in, any perceived recalcitrance from the Fed will likely be greeted with jeers from the peanut gallery.