At least two economists have been interviewed for the position of Federal Reserve vice chair, last held by Stanley Fischer, who resigned earlier this year, according to reports.

Richard Clarida and Lawrence Lindsey, each of whom served in the George W. Bush administration, have interviewed for the spot, the Wall Street Journal reported, citing “people familiar with the matter.” Former PIMCO chief executive Mohamed El-Erian is also said to be in the running.

Richard Clarida
Richard Clarida Bloomberg News

After the selection of Jerome Powell, an attorney, to head the Fed, fixed-income analysts bemoaned a shortage of economists on the Fed Board.

"Clarida, El-Erian, and Lindsey would all fill the perceived economic gap created by the departures of [Janet] Yellen, Fischer, and [Federal Reserve Bank of New York President William] Dudley,” said Gary Pzegeo, head of fixed income at CIBC Atlantic Trust Private Wealth Management. "They may also be a more moderate counterweight to Marvin Goodfriend, the recent nominee for the Fed who is seen as a more conservative critic of the post-crisis policies at the Fed."

Clarida is a Pimco managing director. On a video posted on the company’s website after the last Fed meeting, Clarida said the Fed’s increased optimism about economic growth going forward was a “surprise” and suggested the Fed may be “too relaxed about inflation.”

Lindsey, who runs an advisory company, was a Fed Board member from 1991 through 1997. In 1996, he warned of the stock market bubble and the Fed’s need to prevent bubbles, Paul Mortimer-Lee, chief market economist at BNP Paribas, wrote earlier this year. But in 2013, Lindsey said the Fed should “do everything it can” to help the stock market after the taper tantrum.

“In 2015, Lindsey criticized the Fed for ‘delaying a normalization of rates way, way beyond what is prudent,’ viewing crisis-time policy as having been extended far too long,” Mortimer-Lee wrote. “Given this, and earlier comments on the Fed’s obligations regarding bubbles, he would likely be perceived by markets as hawkish.”

El-Erian, a past deputy director of the International Monetary Fund, is chief economic adviser at Allianz, Pimco’s corporate parent.

The candidates are economists who understand markets, and are effective communicators, Mortimer-Lee said. “These are good qualities to have.”

Clarida is “a bit more academic” than El-Erian, he said, and spoke of the new neutral rate, “”suggesting low R-star.”

“The consumer is spending,” Mortimer-Lee said, and with tax reform expected to give the middle class a few extra dollars to spend, “Spring will be crucial.” If consumers increase spending and inflation rises, the Fed “may need to reconsider” its plan for three interest rate increases in 2018 and consider adding a fourth.

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Gary Siegel

Gary Siegel

Gary Siegel has been at The Bond Buyer since 1989, currently covering economic indicators and the Federal Reserve system.