Fed’s Clarida Gives Markets a Quick Reassurance

Every once in a while, markets get a really good speech from a Federal Reserve official that summarizes in one place the what, why and so what of U.S. monetary policy. This was the case on Thursday morning when Richard Clarida, the Fed’s vice chairman (and, for full disclosure, a former colleague of mine at Pimco) spoke to the Council on Foreign Relations. Here are the five main takeaways for markets from this speech:

All this will be music to the ears of traders and investors who have profitably ridden a liquidity-driven rally that has allowed them to quickly overcome a set of shocks, including the latest one, the sudden escalation of the U.S.-Iran conflict. Specifically, a senior influential Fed official is reassuring them not to worry that the stock market will be derailed by a sudden change in monetary policy, a misbehaving bond market or both. What it doesn’t guarantee, however, is a smooth transition from the constructive short-term outlook to the unusually uncertain medium term.