Last week the Federal Reserve opted to cut interest rates by 25 basis points, which was what the market expected it to do. But things get more uncertain from here on out. Inflation has been softening this year, but there’s a sense that this trend could turn — especially with the Trump administration coming in after the new year. All of this raises the question of what the Fed does next, and how it’s approaching near-term data versus the longer-term outlook for the economy. At the same time, Trump has had vocal disagreements with Chair Jerome Powell over the path of monetary policy and the role of the central bank, which adds more uncertainty. On this episode, we speak with former Fed Vice Chair Richard Clarida, now an economic advisor at Pimco and a professor of economics at Columbia University, about where the Fed goes from here. This transcript has been lightly edited for clarity.
Key insights from the pod:
Cross-winds for Fed policy — 4:15
Squaring monetary policy lags with the future — 5:23
Signals from long-end bond yields — 7:39
The outlook for inflation — 9:59
Why r* might be higher now — 12:06
The Fed’s impact on housing — 15:22
Financial conditions now — 18:21
Clarida on why inflation went down — 20:20
The outlook for the economy — 23:53
Sticky inflation and the inflation target — 26:23
Trump’s relationship with the Fed — 28:46
The impact of Trump policies — 32:06
How the Fed incorporates ‘vibes’ — 34:35
Advice for Fed watchers — 36:50