Editor’s Note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our s each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. The resignation of another top Fed official embroiled in a trading scandal at the central bank could help Chair Jerome Powell avoid some tough questions at his nomination hearing today. But the revelations that some central bankers were actively trading for their personal gain while engineering a dramatic rescue of financial markets at the height of the pandemic could reverberate for years, and may undermine the Fed’s effort to rebuild public confidence as it seeks to rein in inflation. Vice Chair Richard Clarida said he will step down Friday, two weeks before his term is scheduled to expire, our Victoria Guida reported. A person familiar with the matter said Clarida, whose term is up Jan. 31, was not planning to attend the January meeting of the Fed’s policy-setting committee. “Resigning before the hearing helps Powell , a political reality the Fed and Clarida is surely aware of,” said Aaron Klein, a senior fellow at the Brookings Institution and former aide to Senate Banking Chair Chris Dodd (D-Conn.). That doesn’t mean the scandal is going away. Progressive groups have hammered the Fed over officials’ unusual trading during the early months of 2020, when the Fed intervened to help cushion the economy from the pandemic, and they continue to call for a fuller investigation. “This is not a good look for an institution that has had issues related to inequities in income and wealth — the accusations coming out of the financial crisis, in the way that very cheap money has benefited equities and equity owners,” said Mark Spindel, chief investment office at MBB Capital Partners who has written extensively about the Fed’s relationship with Congress. But Powell has bigger problems today, Spindel said. “The misguided inflation forecasts, the being behind the curve, the complexities of Covid, the [new] framework, rate hikes, balance sheet … [are] more than enough for senators to focus on,” he said. “He will be asked from both sides what went wrong.” An ‘Alice-in-Wonderland’ fantasy — That’s how former New York Fed President Bill Dudley, in a Bloomberg opinion piece Monday , described Fed officials’ projections that inflation will melt away by 2024, even as the federal funds rate remains well below neutral. “More likely, the Fed will have to leave the enchanted forest,” he said. “This means becoming a lot more hawkish, both in the near term and over the next few years.” That followed an op-ed in the Financial Times on Monday from former Fed Governor Frederic Mishkin, who said the Fed “has been mugged by reality ,” and is “behind the curve” in tightening. Harsh words from former Fed officials and more fodder for Fed critics at today’s hearing. Support from Sherrod — “Chair Powell, to his credit, recognized the importance of full employment – and what that means for all workers, particularly those at the margins of our economy,” Senate Banking Committee Chair Sherrod Brown (D-Ohio) will say in his opening statement. “He held firm against attempts to politicize the Fed, and prevented an economic downturn from becoming far worse.” —“[S]ome are already suggesting the Fed pull back on its support of the broader economy, and make it harder for people to get jobs …The Fed must not allow Wall Street to recover, while working Americans are left behind.” —”Chair Powell, President Biden renominated you to grow the economy for all Americans, not just those at the top. And to protect that growth from threats to our financial system, like risky Wall Street schemes, crypto bubbles, and increasing climate disasters. We expect you to meet these challenges, and I believe you have shown the leadership to do so.” On a lighter note — Our favorite exchange from Powell’s last confirmation hearing, in January 2018, courtesy of the official transcript: Mr. POWELL. I will also introduce two of my five siblings here today, my sister Libby and my sister Monica. The other three siblings are here in spirit and all will later claim to have watched this hearing live. [Laughter.] Chairman CRAPO. Which I am sure will be true. [Laughter.] Mr. POWELL. We will deem it true. Some stories are too good to fact check. IT’S TUESDAY — Have a tip or idea for Morning Money? Email us at kdavidson@politico.com or aweaver@politico.com, or hit us up on Twitter at @katedavidson or @aubreeeweaver. | 
