Subtle Clarida Pivot May be Lasting

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Fed vice chair Clarida spoke at a web conference Monday and at first blush there was little change in his commentary but at one point he was asked about inflation. He responded by saying that because he expected it to rise due to transitory factors, he would be placing more emphasis on employment metrics in the coming months.

Few people picked up on the comment but it could be an important shift at the Fed as is revealing of their broader thinking. There are clearly worries about inflation but officials are nearly unanimous in believing that price rises will be transitory. Barring a change of heart, that makes incoming inflation data almost irrelevant in the Fed's thinking. So 'significant further progress' is really an employment metric.

Though that's a deliberately vague target, officials continue to cite 8 million missing jobs. By that measure, would 4 million jobs be a reasonable benchmark? If so, that would be 1.3 million per month ahead of Jackson Hole, where many expect a tapering announcement to come.

That's an extremely high bar and it raises the risk that the Fed waits longer. That's the kind of thing that would add further fuel to the precious metals rally that's boosted gold to the best since February 1.

It was also notable that the market reaction to inflationary metrics in the Empire Fed was nil. Both the 'prices paid' and 'prices received' indexes hit records (since 2000) and markets barely budged. On the whole, Monday's price action was modestly negative for the US dollar.

Is this an early sign that markets will begin to weigh employment more heavily than inflation? That will be something to watch closely. Keep in mind that even with the huge upside surprise in inflation last week, markets have recovered nicely. We may have seen the worst already.