Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Okay, folks, what we're going to talk about you, We're
Speaker 2: not going to talk DSGE. We're not going to talk
Speaker 2: integals within intergals or derivatives. The matthewness that Richard Claret
Speaker 2: has acclaimed for the former vice chairman of the FED.
Speaker 2: I don't want to know when the Fed's going to
Speaker 2: cut rates or all that. We're going to talk about
Speaker 2: what you did at Columbia. Okay, Richard Claret, of folks
Speaker 2: went into Columbia with some massive hires in retention of
Speaker 2: one of the best faculties in the planet. It goes
Speaker 2: back to Leuven in Belgium, it goes back to some
Speaker 2: of the way back work in Germany, and of course
Speaker 2: the combine out of England is well, you retained a
Speaker 2: laureate Stiglitz, You dealt with Jeff Sachs with all of
Speaker 2: his ability. In that you have ned Phelps with this
Speaker 2: massive eclectic view over time. Column Umbia owns the social analysis.
Speaker 2: Good morning Chicago, and mister Becker, you own the social
Speaker 2: analysis of this case shaped economy. Jeff Sachs wrote a
Speaker 2: book twenty years ago. I'm going to say that was
Speaker 2: way out front on this How case shaped are we
Speaker 2: when you talk to your friends and Romans and countrymen
Speaker 2: in Colombia, how K shaped are we now? Doctor Claardon.
Speaker 1: Well, and also you left out Bob Mandel truly a
Speaker 1: giant and international monetary economics. So it certainly has been
Speaker 1: a treat to be at Columbia all these years. We're
Speaker 1: definitely in a K shape economy. I think we've been
Speaker 1: moving in that direction for thirty years, not in a
Speaker 1: straight line, but the trend has definitely been in that direction.
Speaker 1: I think the events with the pandemic, the policy response,
Speaker 1: and the like amplified some of those trends. You know,
Speaker 1: in America, if you own your home, as sixty percent
Speaker 1: of people do, and if you own stock, you've had
Speaker 1: a very good run. But that means there's a substantial
Speaker 1: fraction of the country that has not been participating. Maybe
Speaker 1: if I can just parachute a bit in on this.
Speaker 1: You know, at the FED, when the economy slows, you
Speaker 1: cut rates, and I certainly did that at my time
Speaker 1: at the FED, and the FED understands it. When it
Speaker 1: lowers rates, it's going to support the labor market, which
Speaker 1: is good and for a lot of people. That is
Speaker 1: their stake in the economy, is their job. But low
Speaker 1: rates also lead to higher acid valuations and also leads
Speaker 1: to some of the trends that you've mentioned in the
Speaker 1: case shape economy. And so I think central bankers understand that,
Speaker 1: but their toolkit is really pretty limited. So I think
Speaker 1: that's how we end up with this dynamic.
Speaker 3: How does it FED, a reserve or any central bank
Speaker 3: deal with a black swan like, oh, I don't know,
Speaker 3: a war andrant that came out of nowhere. I mean,
Speaker 3: how does a FED typically look at those types of events.
Speaker 1: It's difficult to predict back swamp black swans almost by definition.
Speaker 1: So what you try to do is you try to
Speaker 1: do analysis. You try to look back at history. You know,
Speaker 1: history doesn't repeat, but it rhymes as the saying goes.
Speaker 1: And so I'm sure at the FED they're looking at
Speaker 1: past oil shocks, past Middle East conflicts. But they'll also
Speaker 1: have to fix factor in, Paul, that it's a different
Speaker 1: US economy than you know back in my college years
Speaker 1: in the nineteen seventies, in particular of the US is
Speaker 1: a net energy export. Important however, is in the FEDCE
Speaker 1: models it's still the case that when energy prices go up,
Speaker 1: the economy slows, and I think the main reason for
Speaker 1: that is that erods real incomes for a lot of workers.
Speaker 1: Also the fact that the US imports a lot of
Speaker 1: goods that have a high energy content, and so yes,
Speaker 1: you'd better be an exporter than an importer. But the
Speaker 1: US is not insulated from this shock.
Speaker 2: Might Karl Marx comes from the giant Thomas soul Out
Speaker 2: at Hoover. Yeah, and also from my great mentor in London,
Speaker 2: Megnum Desaia, who we lost last year, Karl Marx said
Speaker 2: in the British Museum reading room and wrote a treatise
Speaker 2: on the end of capitalism, and the bottom line is,
Speaker 2: by definition we become ever more k shaped, evermore divided,
Speaker 2: and there's corrective solutions. Do you worry that within all
Speaker 2: of the institutions of you've as you've represented, that we're
Speaker 2: getting to stress points where it falls apart.
Speaker 1: Well, I'm not sure of that, but certainly the trends,
Speaker 1: as I mentioned, since twenty twenty have definitely moved more
Speaker 1: in that direction. I would point out though, that we
Speaker 1: have had periods not all that long ago, you know,
Speaker 1: certainly in the last part of Obama and during the
Speaker 1: first Trump term, before the before the pandemic, you actually
Speaker 1: had some of those K shaped trends.
Speaker 2: Reverses the lower desk post.
Speaker 1: And I can certainly tell you that during my time
Speaker 1: at the FED, it was one of my focuses. That's
Speaker 1: one reason why the FED got a lot of criticism
Speaker 1: for cutting rates in twenty nineteen, because the unemployment rate
Speaker 1: was below four percent and some models were saying, oh,
Speaker 1: you can't operate the economy below four percent unemployment, and
Speaker 1: our attitude, well, let's see how the economy operates. And
Speaker 1: I think that was a positive development. And so I
Speaker 1: think policymakers do need when they are in a healthy
Speaker 1: economy to allow the economy to reach its potential.
Speaker 3: One could argue, I mean the war. Notwithstanding the economy
Speaker 3: is generally performing well in terms of growth, the unemployment
Speaker 3: still looks like at our near full employment. Sure, I
Speaker 3: guess that's a recipe for the FED to say, all right,
Speaker 3: we're doing our job and maybe we can just sit down,
Speaker 3: stand down a little bit. Is that what you expect
Speaker 3: the FED to do over the next several meetings.
Speaker 2: I do.
Speaker 1: I think that they've pretty much signaled that the existing
Speaker 1: FED before Kevin Warsh arrives. It is happy right now
Speaker 1: to step back see how the economy evolves with its
Speaker 1: energy shock. It is interesting that they did indicate that
Speaker 1: most of the members of the committee still see at
Speaker 1: least one cut this year and next year as appropriate,
Speaker 1: and so I would think that over time Kevin Warsh
Speaker 1: will be able to get the Committee to cut rates
Speaker 1: at least a couple more times, but it may not
Speaker 1: happen for for a while.
Speaker 2: Richard Clarita with his folks of Columbia of course of
Speaker 2: Pimco as well global economic advisor and the former chair
Speaker 2: of the Federal former vice chair, I was gonna give
Speaker 2: you a promotion there, sorry forbervice chair the Federal system
Speaker 2: as well. Okay, I gotta get you in trouble Myron
Speaker 2: was and Governor Myron was in with John Farrell, John
Speaker 2: I thought was great. Gildham, there's a FED reacting after
Speaker 2: the fact, folks, John Tucker told me the Latin his
Speaker 2: ex post and then there's this whole dream of getting
Speaker 2: out front and fixing it before it screws up, called
Speaker 2: ex ante. I would suggest Governor Myron is not nearly
Speaker 2: ex post. Is his brethren at the FED. He genuinely
Speaker 2: wants to get anti Is there any evidence of a
Speaker 2: successful central bank trying to get out front of the model.
Speaker 1: Well, you have to look pretty long and hard to
Speaker 1: find that.
Speaker 2: Testament.
Speaker 1: Yeah, you know, models are tools, but they're backward looking,
Speaker 1: and in particular, I think oftentimes the argument that Governor
Speaker 1: Myron has made is he he has a personal individual
Speaker 1: belief that the neutral interest rate in the US is
Speaker 1: well below the current level and well below where the
Speaker 1: committee believes. You know, he could be right, but I
Speaker 1: don't think that is the view on the committee, so
Speaker 1: I think he'll continue to be a minority view on that.
Speaker 3: You mentioned mister Warsh taking the FED chair seat later
Speaker 3: this year, in several months time. I'm not sure we've
Speaker 3: got a path for that to happen. How concerned are
Speaker 3: you about some of the noise surrounding that whole.
Speaker 1: Well, I think it's it's pretty clear now that in
Speaker 1: order to become a FED chair you've got to be
Speaker 1: confirmed by the Senate, and to be confirmed by the Senate,
Speaker 1: you have to have an affirmative vote in the Banking Committee,
Speaker 1: and right now Senator Tillis has indicated he will not
Speaker 1: support any FED nominee, including Warsh, who he thinks would
Speaker 1: be a good choice until the current situation with the
Speaker 1: Justice Department subpoenas and the FED is resolved. And Power
Speaker 1: more or less said that himself that he's not going
Speaker 1: anywhere until it's resolved. We do think it will be resolved.
Speaker 1: We do think eventually Warsh becomes chair. The timing of
Speaker 1: that is uncertain. Whether or not it happens in time
Speaker 1: for the June meeting is too soon to tell, but
Speaker 1: we do think eventually that it will get resolved.
Speaker 2: The first thing I did with AI, Yeah, Tom Secunda,
Speaker 2: wee our founders grabbed me by the cheese its rack
Speaker 2: and the food court, so that we need a briefing
Speaker 2: and mister Secunda's leadership, folks on AI is noted across
Speaker 2: a ten state area. Richard Clarity. He said, here's AI.
Speaker 2: Get up to speed on it, Richard Clair, It is
Speaker 2: up to speed on AI right now. Is it a
Speaker 2: job creator or is it a job loser?
Speaker 1: Well, right now doesn't appear to be either in the data.
Speaker 1: And I think there are as many opinions on this
Speaker 1: as there are people that you talk to. Myself, I
Speaker 1: am I'm skeptical that in the next year or so
Speaker 1: we're going to see a dramatic change in the labor
Speaker 1: market because of AI. The models are impressive, but the
Speaker 1: analogy I like to use is even their developers admit
Speaker 1: that they hallucinate. Hallucination is a feature, not a bug.
Speaker 1: And I don't know about you at Bloomber, but I
Speaker 1: can tell you at PIMCO, we don't hire a lot
Speaker 1: of employees who say part of my job description is
Speaker 1: I'm going to hallucinate, and so I think until they
Speaker 1: figure that out, it may not have as much an
Speaker 1: effect on the labor market as people think.
Speaker 2: You and I used a kufulinser slide roll. Okay, the
Speaker 2: only way you can learn logs is a slide role.
Speaker 2: Remember when the Hewlett packard, the rich kids had the
Speaker 2: Hewlett Packard. What was it called reverse polish? Reverse Polish.
Speaker 2: I got one on my phone here. But to me,
Speaker 2: it's the same shift where the professors are going mental
Speaker 2: in clash and use your calculator and all that, and
Speaker 2: we're just going to get We're gonna deal with it.
Speaker 2: I think we're gonna.
Speaker 1: Deal with it and remember that near term in order
Speaker 1: to get the nirvana of AI benefits. There has to
Speaker 1: be a lot of capital spending, data centers, power generation,
Speaker 1: and so the the interesting thing about AI right now
Speaker 1: is that it's really a driver of a lot of
Speaker 1: the old traditional bricks and mortar economy.
Speaker 2: One final question, Yes, sir Jerome Powell, you've been a
Speaker 2: staunch defender of him. He's had a pretty good ten
Speaker 2: days week here. Yeah, and and so uh the governor
Speaker 2: as well, under duress. What's his value add to the
Speaker 2: American people to serve out all of his different tenures.
Speaker 1: Well, I think it's important. I think I think J.
Speaker 1: Powell recognizes that, you know, the first sentence, and eventually,
Speaker 1: whenever his New York Times obituary is written, is he
Speaker 1: wants to make sure that it says something along the
Speaker 1: lines as chair Powell Report restored price stability and maintained
Speaker 1: the Fed's independence. And I think that he is going
Speaker 1: to achieve that.
Speaker 2: Thank you so much, Richard Claire to coming was this
Speaker 2: okay that we didn't do monetary part of the game.
Speaker 1: And I also say it must be opening day because
Speaker 1: mister Kean's wearing a tomorrow probably mister Sweeney, of course,
Speaker 1: my god, where's the Duke? I know are you going
Speaker 1: to the game?
Speaker 3: Not going to the game, but it'll be a great
Speaker 3: game against.
Speaker 2: I'm afraid to ask. How's your bracket?
Speaker 1: Yes, well, I'm a loyal alum of the University of
Speaker 1: Illinois and I picked them. At least on that part
Speaker 1: of the bracket. I'm doing pretty well. Although I got
Speaker 1: to tell you, what is this playing a tournament game
Speaker 1: on a home court for the number two?
Speaker 2: Do they have a bracket pool at the FED? Oh? Ye, PhDs,
Speaker 2: all the stuff and all that. I think so there's
Speaker 2: a some ringer there that you know, like Vince Ryan
Speaker 2: Hard years ago was winning three years in a row.
Speaker 1: Anyway, go line on, okay, Richard Claire, thank you so much, greatly,
Speaker 1: greatly appreciate it.