Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is an honor
Speaker 1: My book of the summer Within the game is Kenneth
Speaker 1: Rogoff of Harvard University. Our Dollar year problem. And what's
Speaker 1: so great is the academics of Roguoff is so much
Speaker 1: the same but at the same time different from the
Speaker 1: prodigious abilities of Richard Claret of Columbia University at PIMCO,
Speaker 1: the former vice chairman of the Fed. We're honored that
Speaker 1: he could join us here this morning. The dollar is weaker.
Speaker 1: Our audience just simply sees euro one sixteen into one
Speaker 1: forty three. There's a crisis of confidence. The Wall Street
Speaker 1: Journal in an editorial today skewers that's the right word, folks,
Speaker 1: skewers the President on his trade policy. If it's our
Speaker 1: dollar your problem? Whose problem is it this morning? To
Speaker 1: see the dollar at the precipice.
Speaker 2: Think they're a couple things first in agreement you Ken
Speaker 2: is remarkable and it's a fantastic book. That the dollar
Speaker 2: is a reserve currency. People hold it because it's a
Speaker 2: store of value. It's useful in trade and financial markets.
Speaker 2: It delivers privileges to the US lower borrowing costs, more
Speaker 2: importantly the ability to borrow a lot more. Tom, I
Speaker 2: do think we want to put this in context. I
Speaker 2: don't see, and I don't think Ken does based on
Speaker 2: what he's written. I don't see the dollar losing that
Speaker 2: status in the next say, five or ten years, simply
Speaker 2: because there's no viable alternative. But that doesn't mean the
Speaker 2: dollar is ever higher and ever stronger. So even a
Speaker 2: dominant reserve currency can have higher and lower VYE. And
Speaker 2: we may be in a period in which the dollar
Speaker 2: is trending down, not just against the Euro, a lot
Speaker 2: of currencies.
Speaker 1: When you were in Columbia, did you work with Hyman Minsky?
Speaker 1: Was he before you? Yes?
Speaker 2: Hymon Minsky was before she was before you were. I'm
Speaker 2: Mundel Mandel, and I was with Professor Mundel, but not mens.
Speaker 1: I know this is this is sacrilege. But how does
Speaker 1: Richard Clarida link every central bank wants gold into our
Speaker 1: dollar confidence and frankly over to a June eighteenth meeting.
Speaker 1: I've never said this Clarida on gold.
Speaker 2: Well, let me say this. This is I'm following this
Speaker 2: pretty closely because the purchases in the official data, the
Speaker 2: purchases of gold are large and they've been picking up.
Speaker 2: I'll share an anecdote with you. I was in Asia
Speaker 2: ten years ago seeing a very sophisticated official investor, official
Speaker 2: institution investor, and we were talking about gold even then.
Speaker 2: This is like twenty fourteen, twenty fifteen, and that was
Speaker 2: in the context of Kiwi infinity, and I said to him, well,
Speaker 2: why invest in gold. You can buy an inflation index security.
Speaker 2: It gives you a hash against inflation. And he looked
Speaker 2: at me and he said, gold doesn't default. And so
Speaker 2: I don't think the US is going to default either,
Speaker 2: but certainly we have seen that allocation. And again talk
Speaker 2: about back to the future. I mean, central banks have
Speaker 2: been holding gold as a reserve for hundreds of years,
Speaker 2: and so we're sort of getting back into that mindset.
Speaker 1: So, Paul, if gold doesn't default like a gold wedding
Speaker 1: ring and a divorce, is that? Do you want to
Speaker 1: comment now? Thank you Rich.
Speaker 3: As a professor of economics at Club you when you
Speaker 3: have your class or your module on tariffs, how do
Speaker 3: you present tariffs to your students?
Speaker 1: Great question.
Speaker 2: Well, in the throughout most of my career, which dates
Speaker 2: back to the nineteen eighties, tariffs have really not been
Speaker 2: front and center. So I have I actually typically did
Speaker 2: not teach on tariffs. I have I have brushed off
Speaker 2: on if I were to teach it, how I would
Speaker 2: teach it. And what's interesting if you look at MPER
Speaker 2: working papers, there's probably been a half dozen working papers
Speaker 2: in the last six months on tariffs, and in the
Speaker 2: previous forty years there were one or two zero. So
Speaker 2: it is an interest to picking up. But the short
Speaker 2: answer is, tariffs of the scale and scope that we're
Speaker 2: talking about now in the US are something we haven't
Speaker 2: seen in decades, and they have implications for the economy
Speaker 2: across the board. They generate revenue for the government, they
Speaker 2: divert some trade into the US, they onshore some investment,
Speaker 2: and so to actually take tariffs at the level that
Speaker 2: we're seeing now, say ten percent, seriously, is a pretty
Speaker 2: complex modeling exercise with a lot of moving parts. So
Speaker 2: I'll leave it at that.
Speaker 3: So as we think about it here, we haven't seen
Speaker 3: rising inflation. No, we haven't seen materially slower economic growth.
Speaker 3: We see a lot of the surveys at the University
Speaker 3: of Michigan and so on. Yeah, cite some concerns, but
Speaker 3: we haven't seen it in the hard numbers. How do
Speaker 3: you think about the hard data versus the soft data,
Speaker 3: which is something that we've now been introduced to.
Speaker 2: Great question, and let me just say up front, you
Speaker 2: have to knowledge that in the last four prints, the
Speaker 2: January print was more ugly, but February through May in
Speaker 2: the CPI have been coming in much better than expected.
Speaker 2: A lot of folks, including me, thought we would begin
Speaker 2: to see some of the tariff show up in the
Speaker 2: CPI report we got yesterday because it's for the month
Speaker 2: of May, and in the month of May, the government
Speaker 2: was collecting a lot of tariff revenue and it did not.
Speaker 2: And as you mentioned, the economy seems to be holding
Speaker 2: in at roughly trend growth, the labor market holding in
Speaker 2: so so far so good. What it does tell me is,
Speaker 2: at minimum, we're not seeing in the data that US
Speaker 2: companies are using the tariffs as a reason or excuse
Speaker 2: to raise prices preemptively. We may see that once tariff's
Speaker 2: going to go to effect more broadly, but yeah, so far,
Speaker 2: I think you'd have to acknowledge the US economies holding
Speaker 2: up quite well.
Speaker 1: The former vice Chairman of the Federal Reserve System in
Speaker 1: a good conversation here with Richard Clarida this morning, always
Speaker 1: with Columbia University and of course PIMCO as well. Trotting
Speaker 1: out yesterday. I'll give the ft credit. I can't remember
Speaker 1: quite where I saw it is the John Edwards chart
Speaker 1: of two Americas. It is breathtaking on consumption seventy sixty
Speaker 1: nine percent of GDP whatever, fifty x percent. I believe
Speaker 1: it is upper decyle. It is shocking what upper quintile is.
Speaker 1: It is shocking what the bottom third is not consuming
Speaker 1: in America. Does Clarita economics work in the polarity of
Speaker 1: the American consumer? Are we so bipolar? By Barbell? If
Speaker 1: you will, Yeah, the normal fed talk doesn't work.
Speaker 2: Tom, It does work, but you have to recognize it.
Speaker 2: As I think I've said on this show before, I
Speaker 2: think the simplest way to think about it is that
Speaker 2: two thirds of Americans live in a home that they own,
Speaker 2: and around that percentage directly or indirectly owned stock. So
Speaker 2: if you own your house and you own stock, I've
Speaker 2: had a great run for five, you know, fifteen, twenty
Speaker 2: thirty years. But if you don't own your own house,
Speaker 2: you don't own stock. You've been falling further and further behind.
Speaker 2: And that's that's at least a third, maybe more, of
Speaker 2: the of the country. That is a factor in terms
Speaker 2: of the nuts and bolts of how the economy functions,
Speaker 2: how monetary policy is transmitted. So yes, Claria economics works
Speaker 2: in this world, but it only works if you acknowledge
Speaker 2: the divergence in those two parts of the economy.
Speaker 3: Rich if I'm your feder Reserve, I'm taking this summer off.
Speaker 3: I'm going to the beach. I'm not doing anything because
Speaker 3: the data doesn't mean I have to do anything. Is
Speaker 3: that a fair strategy here?
Speaker 2: Well, I certainly don't think they're going to do anything
Speaker 2: next week.
Speaker 4: Come I've got to talk it up the fedicides come
Speaker 4: out of that do anything next week, But there will
Speaker 4: be a press conference, and I think the chair may
Speaker 4: use that as an opportunity to signal the direction of trouble.
Speaker 2: You know, one thing I've picked up on in the
Speaker 2: last week or so is FED speak, not only from
Speaker 2: Chris Waller, but all so President Bostic and President Goulesby.
Speaker 2: That does indicate at least to me that the Committee
Speaker 2: may be open to what some have called a good
Speaker 2: news rate cut. So I have been in this camp,
Speaker 2: which is the Fed's only going to cut rates if
Speaker 2: something breaks the unemployment rate goes up. GDP contracts again,
Speaker 2: simply because it looked like with the initial tariff announcement
Speaker 2: the inflation hit would be so substantial. But given the
Speaker 2: better inflation data, and as I would point out, basic
Speaker 2: Clarita Galley Gertler monetary policy rule right now would have
Speaker 2: the FED cutting rates already, And so I think there
Speaker 2: is a case for them to begin to consider that.
Speaker 2: But I think the inclination probably will be to take
Speaker 2: the summer off.
Speaker 1: And the time we got left. And I won't turn
Speaker 1: this into a Columbia dissertation, but let's go nineteen fifty
Speaker 1: one McChesney Martin. We basically yanked the Federal Reserve system
Speaker 1: away from the Department of Treasury. We have a president
Speaker 1: who wants to yank it back. What stops President Trump
Speaker 1: from putting in FED leadership Fed governors that understand the
Speaker 1: buck stops at the Treasury Building and not at the
Speaker 1: Eccles Building.
Speaker 2: Great question, one that I thought about and lived through
Speaker 2: to some extent. I'll make a couple of points. One,
Speaker 2: the president does nominate FED officials, but to be confirmed
Speaker 2: requires a Senate confirmation process. The Senate is not a
Speaker 2: rubber stamp for FED nominees, and so I think that's
Speaker 2: important also to be candid. I think the market will
Speaker 2: have a say, and particularly for for FED chair and
Speaker 2: I don't think this will happen, but we're the president
Speaker 2: to nominate someone who the markets believe would not be
Speaker 2: committed to price stability and would not be a primarily
Speaker 2: independent I think you'd see stocks down, rates out.
Speaker 1: Okay, but I got I gotta cut you off. This
Speaker 1: is too important with Claria. Are you going to get
Speaker 1: a twenty five basis point pop you, Honor if we
Speaker 1: end up with a Trump chairman, or are you talking
Speaker 1: about a stick where we get out over five percent
Speaker 1: rogue offf even hinted towards six percent given selected events.
Speaker 2: Not a twenty five basis point Yonner. No tangible a lift, yes, yes,
Speaker 2: and weaker risk assets stocks, credit spreads higher, yields higher.
Speaker 2: I just don't think it would stick because I wouldn't
Speaker 2: want to be a nominee coming into my hearing with
Speaker 2: that market reaction to my The other thing, I'll say, Tom,
Speaker 2: and it's a little bit wonkish, but look I'm on
Speaker 2: this show, I can be a little bit of a
Speaker 2: walk is Congress Occasionally Congress knows what it's doing. And
Speaker 2: back in the thirties when the Federal Reserve Act was
Speaker 2: modified and amended, it was amended to disperse the authority
Speaker 2: for raising and lowering rates away from the chair towards
Speaker 2: a committee. So it's the green span Fed, it's the
Speaker 2: pal Fat, it's the Bernanke Fed. But by statute, rate
Speaker 2: decisions are made by a majority vote of a committee.
Speaker 2: Five of the twelve members of that committee a bank
Speaker 2: presidents who are not appointed by the White House. Seven
Speaker 2: of them are obviously upper fullsting governors. And so I
Speaker 2: do think that the system has an intelligent design, and
Speaker 2: so I'm not that concerned about that outcome. But if
Speaker 2: it were to happen, I think Ken is right.
Speaker 1: With Catherine Man of Brandai's holding court at the Bank
Speaker 1: of England. Does the Bank of England get it right?
Speaker 1: In a more fractured and spread out debate versus green
Speaker 1: Spanning and certitude in Washington.
Speaker 2: A various stute comment because not all central banks have
Speaker 2: similar cultures. In fact, I remember a conversation with a
Speaker 2: senior Bank of England officials said that he actually viewed
Speaker 2: it as a as a feature, not a bug, that
Speaker 2: in their system the governor occasionally is on the losing
Speaker 2: side of an interest rate vote. The descent, the culture
Speaker 2: of descent there is much more accepted than at the FED.
Speaker 2: There are descents at the FED. We've actually had some
Speaker 2: from some governors recently, but that is a difference.
Speaker 1: Yeah, brilliant Richard Claire to thank you so much. Thanks
Speaker 1: for being Jimko and of course all he's with Colombia economics,