June 12, 2025 • 12 mins
Richard Clarida, global economic advisor at Pacific Investment Management Co. (Pimco), offers insight into the firm’s annual secular outlook with a focus on a “fragmenting” world, the long end of the yield curve, and the path forward for the Federal Reserve. He speaks with Bloomberg's Tom Keene and Paul Sweeney
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Speaker 1 (00:02):
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 year problem. And what's
so great is the academics of Roguoff is so much
the same but at the same time different from the
(00:24):
prodigious abilities of Richard Claret of Columbia University at 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 one sixteen into one
forty three. There's a crisis of confidence. The Wall Street
Journal in an editorial today skewers that's the right word, folks,
(00:48):
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.
Speaker 2 (00:59):
Think they're a couple things first in agreement you Ken
is remarkable and it's a fantastic book. That 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 costs, more
(01:20):
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 VYE. And
(01:42):
we may be in a period in which the dollar
is trending down, not just against the Euro, a lot
of currencies.
Speaker 1 (01:47):
When you were in Columbia, did you work with Hyman Minsky?
Was he before you? Yes?
Speaker 2 (01:52):
Hymon Minsky was before she was before you were. I'm
Mundel Mandel, and I was with Professor Mundel, but not mens.
Speaker 1 (01:59):
I know this is this is sacrilege. But how does
Richard Clarida link every central bank wants gold into our
dollar confidence and frankly over to a June eighteenth meeting.
I've never said this Clarida on gold.
Speaker 2 (02:16):
Well, let me say this. This is 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
ten years ago seeing a very sophisticated official investor, official
institution investor, and we were talking about gold even then.
(02:38):
This is like twenty fourteen, twenty fifteen, and that was
in the context of Kiwi infinity, and I said to him, well,
why invest in gold. You can buy an inflation index security.
It gives you a hash 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,
(02:59):
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.
Speaker 1 (03:12):
So, Paul, if gold doesn't default like a gold wedding
ring and a divorce, is that? Do you want to
comment now? Thank you Rich.
Speaker 3 (03:22):
As a professor of economics at Club you when you
have your class or your module on tariffs, how do
you present tariffs to your students?
Speaker 1 (03:31):
Great question.
Speaker 2 (03:32):
Well, in the throughout most of my career, which dates
back to the nineteen eighties, tariffs have really not been
front and center. So I have I actually typically did
not teach on tariffs. I have I have brushed off
on if I were to teach it, how I would
teach it. And what's interesting if you look at MPER
(03:52):
working papers, there's probably been a half dozen working papers
in the last six months on tariffs, and in the
previous forty years there were one or two zero. So
it is an interest to picking up. But the short
answer is, tariffs of the scale and scope that we're
talking about now in the US are something we haven't
seen in decades, and they have implications for the economy
(04:15):
across the board. They generate revenue for the government, they
divert some trade into the US, they onshore some investment,
and so to actually take tariffs at the level that
we're seeing now, say ten percent, seriously, is a pretty
complex modeling exercise with a lot of moving parts. So
I'll leave it at that.
Speaker 3 (04:36):
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 at the University
of Michigan and so on. Yeah, 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.
Speaker 2 (04:57):
Great question, and let me just say up front, you
have to knowledge that in the last four prints, the
January print was more 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
(05:17):
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 good. What it does tell me is,
at minimum, we're not seeing in the data that US
(05:39):
companies are using the tariffs as a reason or excuse
to raise prices preemptively. We may see that once tariff's
going to go to effect more broadly, but yeah, so far,
I think you'd have to acknowledge the US economies holding
up quite well.
Speaker 1 (05:56):
The former vice Chairman of the Federal Reserve System in
a good conversation here with Richard Clarida 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 seventy sixty
(06:17):
nine percent of GDP whatever, fifty x percent. I believe
it is upper decyle. It is shocking what upper quintile is.
It is shocking what the bottom third is not consuming
in America. Does Clarita economics work in the polarity of
the American consumer? Are we so bipolar? By Barbell? If
(06:39):
you will, Yeah, the normal fed talk doesn't work.
Speaker 2 (06:43):
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 owned stock. So
if you own your house and you own stock, I've
had a great run for five, you know, fifteen, twenty
(07:03):
thirty 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, Claria economics works
in this world, but it only works if you acknowledge
(07:24):
the divergence in those two parts of the economy.
Speaker 3 (07:28):
Rich if I'm your feder Reserve, I'm taking this 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?
Speaker 2 (07:38):
Well, I certainly don't think they're going to do anything
next week.
Speaker 4 (07:42):
Come I've got to talk it up the fedicides come
out of that 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 trouble.
Speaker 2 (07:53):
You know, one thing I've picked up on in the
last week or so is FED speak, not only from
Chris Waller, but all so President Bostic and President Goulesby.
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
(08:13):
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
Clarita Galley Gertler monetary policy rule right now would have
the FED cutting rates already, And so I think there
(08:34):
is a case for them to begin to consider that.
But I think the inclination probably will be to take
the summer off.
Speaker 1 (08:42):
And the time we got left. And I won't turn
this into a Columbia dissertation, but let's go nineteen fifty
one 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
(09:06):
buck stops at the Treasury Building and not at the
Eccles Building.
Speaker 2 (09:10):
Great question, one that I thought about and lived through
to some extent. I'll make a couple of 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
(09:33):
have a say, and particularly for for FED chair and
I don't think this will happen, but we're the president
to nominate someone who the markets believe would not be
committed to price stability and would not be a primarily
independent I think you'd see stocks down, rates out.
Speaker 1 (09:49):
Okay, but I got I gotta cut you off. This
is too important with Claria. Are you going to get
a twenty five basis point pop you, Honor if we
end up with a Trump chairman, or are you talking
about a stick where we get out over five percent
rogue offf even hinted towards six percent given selected events.
Speaker 2 (10:09):
Not a twenty five basis point Yonner. No tangible a 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 with
that market reaction to my The other thing, I'll say, Tom,
and it's a little bit wonkish, but look I'm on
(10:30):
this show, I can be a little bit of a
walk is Congress Occasionally Congress knows what it's doing. And
back in the thirties 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 green span Fed, it's the
pal Fat, it's the Bernanke Fed. But by statute, rate
(10:53):
decisions are made by a majority vote of a committee.
Five of the twelve members of that committee a bank
presidents who are not appointed by the White House. Seven
of them are obviously upper fullsting 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
(11:14):
it were to happen, I think Ken is right.
Speaker 1 (11:16):
With Catherine Man of Brandai's holding court at the Bank
of England. Does the Bank of England get it right?
In a more fractured and spread out debate versus green
Spanning and certitude in Washington.
Speaker 2 (11:27):
A various stute comment because not all central banks have
similar cultures. In fact, I remember a conversation with a
senior Bank of England officials said that he actually viewed
it as a as a feature, not a bug, that
in their system the governor occasionally is on the losing
side of an interest rate vote. The descent, the culture
of descent there is much more accepted than at the FED.
(11:50):
There are descents at the FED. We've actually had some
from some governors recently, but that is a difference.
Speaker 1 (11:55):
Yeah, brilliant Richard Claire to thank you so much. Thanks
for being Jimko and of course all he's with Colombia economics,
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 year problem. And what's
so great is the academics of Roguoff is so much
the same but at the same time different from the
(00:24):
prodigious abilities of Richard Claret of Columbia University at 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 one sixteen into one
forty three. There's a crisis of confidence. The Wall Street
Journal in an editorial today skewers that's the right word, folks,
(00:48):
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.
Speaker 2 (00:59):
Think they're a couple things first in agreement you Ken
is remarkable and it's a fantastic book. That 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 costs, more
(01:20):
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 VYE. And
(01:42):
we may be in a period in which the dollar
is trending down, not just against the Euro, a lot
of currencies.
Speaker 1 (01:47):
When you were in Columbia, did you work with Hyman Minsky?
Was he before you? Yes?
Speaker 2 (01:52):
Hymon Minsky was before she was before you were. I'm
Mundel Mandel, and I was with Professor Mundel, but not mens.
Speaker 1 (01:59):
I know this is this is sacrilege. But how does
Richard Clarida link every central bank wants gold into our
dollar confidence and frankly over to a June eighteenth meeting.
I've never said this Clarida on gold.
Speaker 2 (02:16):
Well, let me say this. This is 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
ten years ago seeing a very sophisticated official investor, official
institution investor, and we were talking about gold even then.
(02:38):
This is like twenty fourteen, twenty fifteen, and that was
in the context of Kiwi infinity, and I said to him, well,
why invest in gold. You can buy an inflation index security.
It gives you a hash 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,
(02:59):
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.
Speaker 1 (03:12):
So, Paul, if gold doesn't default like a gold wedding
ring and a divorce, is that? Do you want to
comment now? Thank you Rich.
Speaker 3 (03:22):
As a professor of economics at Club you when you
have your class or your module on tariffs, how do
you present tariffs to your students?
Speaker 1 (03:31):
Great question.
Speaker 2 (03:32):
Well, in the throughout most of my career, which dates
back to the nineteen eighties, tariffs have really not been
front and center. So I have I actually typically did
not teach on tariffs. I have I have brushed off
on if I were to teach it, how I would
teach it. And what's interesting if you look at MPER
(03:52):
working papers, there's probably been a half dozen working papers
in the last six months on tariffs, and in the
previous forty years there were one or two zero. So
it is an interest to picking up. But the short
answer is, tariffs of the scale and scope that we're
talking about now in the US are something we haven't
seen in decades, and they have implications for the economy
(04:15):
across the board. They generate revenue for the government, they
divert some trade into the US, they onshore some investment,
and so to actually take tariffs at the level that
we're seeing now, say ten percent, seriously, is a pretty
complex modeling exercise with a lot of moving parts. So
I'll leave it at that.
Speaker 3 (04:36):
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 at the University
of Michigan and so on. Yeah, 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.
Speaker 2 (04:57):
Great question, and let me just say up front, you
have to knowledge that in the last four prints, the
January print was more 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
(05:17):
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 good. What it does tell me is,
at minimum, we're not seeing in the data that US
(05:39):
companies are using the tariffs as a reason or excuse
to raise prices preemptively. We may see that once tariff's
going to go to effect more broadly, but yeah, so far,
I think you'd have to acknowledge the US economies holding
up quite well.
Speaker 1 (05:56):
The former vice Chairman of the Federal Reserve System in
a good conversation here with Richard Clarida 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 seventy sixty
(06:17):
nine percent of GDP whatever, fifty x percent. I believe
it is upper decyle. It is shocking what upper quintile is.
It is shocking what the bottom third is not consuming
in America. Does Clarita economics work in the polarity of
the American consumer? Are we so bipolar? By Barbell? If
(06:39):
you will, Yeah, the normal fed talk doesn't work.
Speaker 2 (06:43):
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 owned stock. So
if you own your house and you own stock, I've
had a great run for five, you know, fifteen, twenty
(07:03):
thirty 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, Claria economics works
in this world, but it only works if you acknowledge
(07:24):
the divergence in those two parts of the economy.
Speaker 3 (07:28):
Rich if I'm your feder Reserve, I'm taking this 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?
Speaker 2 (07:38):
Well, I certainly don't think they're going to do anything
next week.
Speaker 4 (07:42):
Come I've got to talk it up the fedicides come
out of that 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 trouble.
Speaker 2 (07:53):
You know, one thing I've picked up on in the
last week or so is FED speak, not only from
Chris Waller, but all so President Bostic and President Goulesby.
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
(08:13):
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
Clarita Galley Gertler monetary policy rule right now would have
the FED cutting rates already, And so I think there
(08:34):
is a case for them to begin to consider that.
But I think the inclination probably will be to take
the summer off.
Speaker 1 (08:42):
And the time we got left. And I won't turn
this into a Columbia dissertation, but let's go nineteen fifty
one 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
(09:06):
buck stops at the Treasury Building and not at the
Eccles Building.
Speaker 2 (09:10):
Great question, one that I thought about and lived through
to some extent. I'll make a couple of 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
(09:33):
have a say, and particularly for for FED chair and
I don't think this will happen, but we're the president
to nominate someone who the markets believe would not be
committed to price stability and would not be a primarily
independent I think you'd see stocks down, rates out.
Speaker 1 (09:49):
Okay, but I got I gotta cut you off. This
is too important with Claria. Are you going to get
a twenty five basis point pop you, Honor if we
end up with a Trump chairman, or are you talking
about a stick where we get out over five percent
rogue offf even hinted towards six percent given selected events.
Speaker 2 (10:09):
Not a twenty five basis point Yonner. No tangible a 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 with
that market reaction to my The other thing, I'll say, Tom,
and it's a little bit wonkish, but look I'm on
(10:30):
this show, I can be a little bit of a
walk is Congress Occasionally Congress knows what it's doing. And
back in the thirties 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 green span Fed, it's the
pal Fat, it's the Bernanke Fed. But by statute, rate
(10:53):
decisions are made by a majority vote of a committee.
Five of the twelve members of that committee a bank
presidents who are not appointed by the White House. Seven
of them are obviously upper fullsting 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
(11:14):
it were to happen, I think Ken is right.
Speaker 1 (11:16):
With Catherine Man of Brandai's holding court at the Bank
of England. Does the Bank of England get it right?
In a more fractured and spread out debate versus green
Spanning and certitude in Washington.
Speaker 2 (11:27):
A various stute comment because not all central banks have
similar cultures. In fact, I remember a conversation with a
senior Bank of England officials said that he actually viewed
it as a as a feature, not a bug, that
in their system the governor occasionally is on the losing
side of an interest rate vote. The descent, the culture
of descent there is much more accepted than at the FED.
(11:50):
There are descents at the FED. We've actually had some
from some governors recently, but that is a difference.
Speaker 1 (11:55):
Yeah, brilliant Richard Claire to thank you so much. Thanks
for being Jimko and of course all he's with Colombia economics,
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