FWIW, I got a response back from Feedback Tracker that seems to fix the problem. 

https://www.reallusion.com/FeedBackTracker/Issue/Odd-interpolation-of-hand-rotation-between-keyframes

Changing the effector to "IK" did the trick.

That fixed the problem for my simple example! I'll have to give it a try with my "real" work. I generally try to avoid lots of clips and especially breaking clips.
If nothing else, it's an option for the rare occasions I run into this. Many thanks!

Hopefully RL will/can fix this for the single-clip scenario.

Thank you for the response. I'll give that a try.

Yeah, you may be experiencing a lot of annoying interpolations for wrist and some other limb with certain movements.
In such cases disabling Auto Extend and then using Auto Blend might be a better choice.
(Auto Blend seems to be utilizing more simplified and straightforward routine than Auto Extend).

I've opened a ticket on this in Feedback Tracker.

As a sanity check, I exported a CC character to Blender (without any animation) and keyframed some local rotations on the upper arm and hand. Everything rotated and interpolated as you'd expect. No problem.

I tried creating the keyframes in "Body Part Mode" and initially that appeared to fix the problem. However, when I tried to verify the "fix" with a new project and character the problem still cropped up.

Any ideas on what might be causing this / how to fix? 
This is a stock character added to a new, empty project. iClone 8.41.

Using the "Edit Motion Layer" panel, I create a couple of keyframes. The first keyframe has the upper arm rotated upwards and the hand rotated upwards.
The second keyframe rotates the hand downwards.
These keyframes are set using LOCAL rotate.

The attached video shows the positions of the two keyframes and the odd hand rotation when scrubbed.

Thank you.