Trump arouses enormous emotions. His policies are usually widely debated. However, the recent decision passed relatively unnoticed. Bad! It’s really strange given its potential impact on the financial markets, including precious metals. So, what new is coming from Washington?

Richard Clarida, The New Vice Chair

On Monday, President Trump announced that he would nominate Richard Clarida and Michelle Bowman to the Fed’s Board of Governors. As you probably remember, there are four vacancies in the seven-member board. We have Jerome Powell as Chair, and Randal Quarles and Lael Brainard as members. Trump has recently nominated Marvin Goodfriend, but the name has stuck in the Senate. The next two nominations may significantly shape the U.S. central bank, so let’s analyze them.

Who is Richard Clarida, then? Well, he holds a Ph.D. in economics from Harvard University. He served as assistant Treasury Secretary and worked for Credit Suisse and Grossman Asset Management. Currently, Clarida is a Professor of Economics and International Affairs at Columbia University, a PIMCO’s global strategic advisor, and… a folk rock singer. Perhaps Trump likes folk rock, but we doubt whether he nominated Clarida because of a similar music taste. What was probably more important was the fact that he aligns ideologically with Powell. Clarida said once: “We believe Jerome Powell is a smart choice for Fed chair.” And he is also seen as centrist in central banking circles. That’s important as he will probably be the chief deputy for the Chair. Last but not least, Clarida would nicely complement Powell thanks to his academic background.

Fair enough, but let’s dig into his opinions on monetary policy. Clarida is mostly famous from the concept of “new neutral” he introduced in 2014. According to this view, the natural interest rates have declined after the Great Recession. It implies that in the New Neutral World, “neutral policy rates will be well below the policy rates that prevailed before the financial crisis, which in the U.S. averaged about 2% over inflation.” In plain English, it means that the federal funds rate will not increase to 4 percent, but to about 2 percent, if the Fed wants to conduct a neutral policy, i.e., neither accommodative, nor tight. Relatively low real interest rates should be fundamentally positive for gold, a non-bearing interest asset.