PIMCO's Rich Clarida Talks Fed Path
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Bloomberg Audio Studios. Podcasts, radio, news. This is an honor. My book of the summer within the game is Kenneth Rogoff of Harvard University, Our Dollar, Your Problem. And what's so great is the academics of Rogoff

is so much the same, but at the same time different from the prodigious abilities of Richard Claret of Columbia University and Pimco, the former vice chairman of the Fed. We're honored that he could join us here this morning.

The dollar is weaker. Our audience just simply sees Euro 116, Yen to 143. There's a crisis of confidence. The Wall Street Journal in an editorial today skewers, that's the right word, folks, skewers the president on his trade policy.

If it's our dollar, your problem, whose problem is it this morning to see the dollar at the precipice? I think there are a couple of things here. First, in agreement, you know, Canada is remarkable and it's a fantastic book. The dollar is a reserve currency. People hold it because it's a store of value. It's useful in trade and financial markets. It

delivers privileges to the US lower borrowing cost more importantly the ability to borrow a lot more Tom I do think we want to put this in context I don't see and I don't think Ken does based on what he's written I don't see the dollar losing that status in the next say five or ten years simply because there's no viable alternative but that doesn't mean the dollar is ever higher and ever stronger so even a dominant reserve currency can have higher

and lower value. And we may be in a period in which the dollar is trending down, not just against the euro, a lot of currencies. When you were at Columbia, did you work with Hyman Minsky? Was he before you? Yes, Hyman Minsky was before me. He was before you. Not Mundell. I was with Professor Mundell, but not Minsky. I know this is sacrilege, but how does Richard Clarke link

Every central bank wants gold into our dollar confidence, and frankly, over to a June 18th meeting. I've never said this. Clarida on gold. Well, let me say this. I'm following this pretty closely because the purchases—

In the official data, the purchases of gold are large, and they've been picking up. I'll share an anecdote with you. I was in Asia 10 years ago seeing a very sophisticated official investor, official institution investor. And we were talking about gold even then. This is like 2014, 2015. And that was in the context of QE Infinity.

And I said to him, well, why invest in gold? You can buy an inflation index security. It gives you a hedge against inflation. And he looked at me and he said, gold doesn't default. And so I don't think the US is going to default either.

But certainly, we have seen that allocation. And again, talk about back to the future. I mean, central banks have been holding gold as a reserve for hundreds of years. And so we're sort of getting back into that mindset. So, Paul, if gold doesn't default, like a gold wedding ring in a divorce, is that a default? Do you want to comment on that? No, thank you.

Rich, as a professor of economics at Columbia, when you have your class or your module on tariffs, how do you present tariffs to your students? Great question. Well, throughout most of my career, which dates back to the 1980s, tariffs have really not been front and center.

So I haven't, I actually typically did not teach on tariffs. I have brushed up on, if I were to teach it how I would teach it. And what's interesting, if you look at MBER working papers, there have probably been a half dozen working papers in the last decade.

six months on tariffs and in the previous 40 years there were one or two zero so it is an interest of picking up but the short answer is tariffs of the scale and scope that that we're talking about now in the u.s are something we haven't seen in decades and they have implications for the economy across the board they generate revenue for the government um

They divert some trade into the U.S. They onshore some investment. And so to actually take tariffs at the level that we're seeing now, say 10%, seriously, is a pretty complex modeling exercise with a lot of moving parts. So I'll leave it at that. So as we think about it here, we haven't seen rising inflation. No. We haven't seen materially slower economic growth. We see a lot of the

Surveys like the University of Michigan and so on cite some concerns, but we haven't seen it in the hard numbers. How do you think about the hard data versus the soft data, which is something that we've now been introduced to? Great question, and let me just say up front, you have to acknowledge that in the last four prints, the January print were ugly, but February through May in the CPI have been coming in much better than expected. A lot of folks, including me, thought we would begin to see some of the tariff

show up in the CPI report we got yesterday because it's for the month of May. And in the month of May, the government was collecting a lot of tariff revenue, and it did not. And as you mentioned, the economy seems to be holding in at roughly trend growth, the labor market holding in. So, so far, so...

uh... good uh... what it does tell me is at minimum we're not seeing in the data that u_s_ companies are using the tariffs as a reason or excuse to raise prices uh... preemptively uh... we may see that once tariffs go into go to in fact more broadly but yes so far uh... i think you have to acknowledge the u_s_ economy is holding up uh... quite well the former vice chairman of federal reserve system had a good conversation here with richard clare to

This morning, always with Columbia University and, of course, PIMCO as well. Trotting out yesterday, I'll give the FT credit. I can't remember quite where I saw it, is the John Edwards chart of two Americas. It is breathtaking on consumption, 70%, 69% in GDP, whatever, 50x%.

I believe is upper decile. It is shocking what upper quintile is. It is shocking what the bottom third is not consuming in America.

Does Clarida economics work in the polarity of the American consumer? Are we so bipolar, barbell, if you will, that normal Fed talk doesn't work? Tom, it does work, but you have to recognize it. As I think I've said on this show before, I think the simplest way to think about it is that two-thirds of Americans live in a home that they own.

and around that percentage directly or indirectly own stocks. So if you own your house and you own stock, you've had a great run for five, 15, 20, 30 years.

but if you don't own your own house you don't own stock you've been falling further and further behind and that's that's at least a third maybe more of the of the country that is a factor in terms of the nuts and bolts of how the economy functions how monetary policy is transmitted so yes clarity economics works uh in this world but it only works if you acknowledge the the divergence in in those two parts of the economy rich if i'm your federal reserve

I'm taking the summer off. I'm going to the beach. I'm not doing anything because the data doesn't mean I have to do anything. Is that a fair strategy here? Well, I certainly don't think they're going to do anything next week.

Come on, you've got to talk it up. The Fed decides. Come on. I don't think we'll do anything next week. But there will be a press conference, and I think the chair may use that as an opportunity to signal the direction of travel. You know, one thing I've picked up on in the last week or so is Fed speak not only from Chris Waller, but also President Bostick and President Goolsbee.

that does indicate at least to me that the committee may be open to what some have called a good news rate cut. So I have been in this camp, which is,

the Fed's only going to cut rates if something breaks. The unemployment rate goes up, GDP contracts again, simply because it looked like with the initial tariff announcement, the inflation hit would be so substantial. But given the better inflation data, and as I would point out, basic Clare de Galli-Gertler monetary policy rule right now would have the Fed cutting rates already. And so I think there is a case for them to begin to consider this.

that but I think the inclination probably will be to take the summer off. In the time we've got left and I won't turn this into a Columbia dissertation, but let's go. 1951, McChesney Martin, we basically yanked the Federal Reserve System away from the Department of Treasury. We have a president who wants to yank it back. What stops President Trump from putting in Fed leadership

FED GOVERNORS THAT UNDERSTAND THE BUCK STOPS AT

at the Treasury building and not at the Echols building? - Great question, one that I thought about and lived through to some extent. I'll make a couple points. One, the president does nominate Fed officials, but to be confirmed requires a Senate confirmation process. The Senate is not a rubber stamp for Fed nominees. And so I think that's important. Also, to be candid, I think the market will have a say.

And particularly for Fed chair, and I don't think this will happen, but were the president to nominate someone who the markets believe would not be committed to price stability and would not be appropriately independent, I think you'd see stocks down, rates up. I got to cut you off here. This is too important, Richard Clare. Are you going to get a 25 basis point pop yawner

If we end up with a Trump chairman, are you talking about a stick where we get out over 5%? Rogoff even hinted towards 6% given selected events. Not a 25 basis point, Your Honor. A tangible lift.

Yes, yes. And weaker risk assets, stocks, credit spreads higher, yields higher. I just don't think it would stick because I wouldn't want to be a nominee coming into my hearing without market reaction to my... The other thing I'll say, Tom, and it's a little bit wonkish, but look, I'm on this show. I can be a little bit of a wonk, is Congress, occasionally Congress knows what it's doing. And back in the 30s when the Federal Reserve Act was modified and amended,

It was amended to disperse the authority for raising and lowering rates away from the chair towards a committee. So it's the Greenspan Fed, it's the Powell Fed, it's the Bernanke Fed. But by statute, rate decisions are made by a majority vote of a committee.

Five of the 12 members of that committee are Reserve Bank presidents who are not appointed by the White House. Seven of them are obviously up and up bolstering governors. And so I do think that the system has an intelligent design. And so I'm not that concerned about that outcome. But if it were to happen, I think Ken is right. With Catherine Mann of Brandeis holding court at the Bank of England, does the Bank of England get it right in a more fractured, spread out debate versus Greenspanian certitude in Washington?

A very astute comment because not all central banks have similar cultures. In fact, I remember a conversation with a senior Bank of England official said that he actually viewed it as a feature, not a bug, that in their system, the governor...

occasionally is on the losing side of an interest rate vote. The dissent, the culture of dissent there is much more accepted than at the Fed. There are dissents at the Fed. We've actually had some from some governors recently, but that is a difference. Brilliant. Richard Clare, thank you so much. Thanks for having me on. And of course, always with Columbia Economics.

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