---
title: "Former Fed Vice Chair Clarida: Adjusting Inflation Target Requires Clear Communication, Otherwise It Will Exacerbate Market Uncertainty"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/294553771.md"
description: "Former Federal Reserve Vice Chair Clarida warned that if the Fed adjusts its preferred inflation measure without clearly communicating its policy objectives, it could exacerbate market uncertainty. Currently, under Waller's leadership, the Fed is maintaining policy ambiguity. Waller has stated that the Fed is examining whether there are alternative inflation indicators to replace the current core PCE"
datetime: "2026-07-31T20:40:10.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/294553771.md)
  - [en](https://longbridge.com/en/news/294553771.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/294553771.md)
---

# Former Fed Vice Chair Clarida: Adjusting Inflation Target Requires Clear Communication, Otherwise It Will Exacerbate Market Uncertainty

Former Federal Reserve Vice Chair Richard Clarida stated that if the Fed adjusts its preferred inflation measure without clearly communicating its policy objectives, it could exacerbate market uncertainty.

Previously, Fed Chair Waller indicated that the Fed would examine whether there are alternative inflation indicators to replace the current Core Personal Consumption Expenditures Price Index (Core PCE).

Clarida said, “They could choose to adopt an average indicator rather than focusing fixedly on a single index; they could also focus on the CPI or PPI—there are many options.”

“A central bank implementing inflation targeting must be clear about exactly what target it is tracking. This target can change and may evolve over time, which is very important.”

## Core Issue During Waller’s Tenure: Reducing Forward Guidance, But Markets Need More Signals

Clarida’s comments on the Fed’s communication style touch upon the core of policy discussions since Waller succeeded Powell.

Waller hopes the Fed will reduce its use of “forward guidance” to avoid influencing markets by hinting at future interest rate paths in advance. However, in the absence of clear policy signals, Wall Street has begun interpreting the Fed’s stance on its own.

For example, this Wednesday, following the Fed meeting, concerns about resurging inflationary pressures caused a sharp spike in the yield on 30-year U.S. Treasury bonds.

Clarida stated, “The market reaction during the press conference was likely not the outcome the Fed hoped to see.”

## U.S. Treasury Sell-Off Reflects Market’s Lack of Understanding of the Fed’s Reaction Function

Clarida believes that the significant volatility in the U.S. Treasury market is related to the Fed’s deliberate maintenance of policy ambiguity.

He said that in the absence of forward guidance, “the market must form a broader understanding of the Fed’s reaction function.”

Previously, the Fed kept the federal funds rate target range unchanged at 3.5%-3.75%, but three officials voted in favor of a rate hike.

## Clarida Agrees with the View of a “K-Shaped Economy” in the U.S.

Regarding macroeconomics, Clarida agrees with the view that the U.S. economy is exhibiting characteristics of a “K-shaped economy.”

He said that the divergence between the two branches of the U.S. economy has continued to widen over the past six to seven years.

Approximately 60% of Americans own their homes and hold stock assets, benefiting from rising stock markets and asset price appreciation; meanwhile, the other 40% primarily rely on renting for housing and hold fewer equity assets, thus failing to fully share in the wealth growth driven by rising asset prices.

Clarida believes that this economic divergence is becoming an important factor in understanding U.S. consumption, wealth distribution, and the transmission effects of monetary policy.

## Related News & Research

- [Warsh floats fewer Fed meetings](https://longbridge.com/en/news/294562122.md)
- [What to expect from next week’s Fed decision](https://longbridge.com/en/news/293747221.md)
- [Warsh spins a good yarn on bringing down inflation, but markets aren’t buying it](https://longbridge.com/en/news/294270036.md)
- [ROI-Fed patience risks shredding credibility: McGeever](https://longbridge.com/en/news/293936478.md)
- [Fed Meeting Prediction Market Preview: What Will Kevin Warsh Say?](https://longbridge.com/en/news/294217702.md)