WEBVTT - PIMCO's Rich Clarida Talks Fed Path

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. This is an honor

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<v Speaker 1>My book of the summer Within the game is Kenneth

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<v Speaker 1>Rogoff of Harvard University. Our Dollar year problem. And what's

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<v Speaker 1>so great is the academics of Roguoff is so much

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<v Speaker 1>the same but at the same time different from the

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<v Speaker 1>prodigious abilities of Richard Claret of Columbia University at PIMCO,

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<v Speaker 1>the former vice chairman of the Fed. We're honored that

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<v Speaker 1>he could join us here this morning. The dollar is weaker.

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<v Speaker 1>Our audience just simply sees euro one sixteen into one

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<v Speaker 1>forty three. There's a crisis of confidence. The Wall Street

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<v Speaker 1>Journal in an editorial today skewers that's the right word, folks,

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<v Speaker 1>skewers the President on his trade policy. If it's our

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<v Speaker 1>dollar your problem? Whose problem is it this morning? To

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<v Speaker 1>see the dollar at the precipice.

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<v Speaker 2>Think they're a couple things first in agreement you Ken

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<v Speaker 2>is remarkable and it's a fantastic book. That the dollar

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<v Speaker 2>is a reserve currency. People hold it because it's a

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<v Speaker 2>store of value. It's useful in trade and financial markets.

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<v Speaker 2>It delivers privileges to the US lower borrowing costs, more

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<v Speaker 2>importantly the ability to borrow a lot more. Tom, I

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<v Speaker 2>do think we want to put this in context. I

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<v Speaker 2>don't see, and I don't think Ken does based on

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<v Speaker 2>what he's written. I don't see the dollar losing that

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<v Speaker 2>status in the next say, five or ten years, simply

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<v Speaker 2>because there's no viable alternative. But that doesn't mean the

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<v Speaker 2>dollar is ever higher and ever stronger. So even a

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<v Speaker 2>dominant reserve currency can have higher and lower VYE. And

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<v Speaker 2>we may be in a period in which the dollar

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<v Speaker 2>is trending down, not just against the Euro, a lot

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<v Speaker 2>of currencies.

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<v Speaker 1>When you were in Columbia, did you work with Hyman Minsky?

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<v Speaker 1>Was he before you? Yes?

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<v Speaker 2>Hymon Minsky was before she was before you were. I'm

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<v Speaker 2>Mundel Mandel, and I was with Professor Mundel, but not mens.

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<v Speaker 1>I know this is this is sacrilege. But how does

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<v Speaker 1>Richard Clarida link every central bank wants gold into our

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<v Speaker 1>dollar confidence and frankly over to a June eighteenth meeting.

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<v Speaker 1>I've never said this Clarida on gold.

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<v Speaker 2>Well, let me say this. This is I'm following this

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<v Speaker 2>pretty closely because the purchases in the official data, the

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<v Speaker 2>purchases of gold are large and they've been picking up.

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<v Speaker 2>I'll share an anecdote with you. I was in Asia

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<v Speaker 2>ten years ago seeing a very sophisticated official investor, official

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<v Speaker 2>institution investor, and we were talking about gold even then.

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<v Speaker 2>This is like twenty fourteen, twenty fifteen, and that was

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<v Speaker 2>in the context of Kiwi infinity, and I said to him, well,

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<v Speaker 2>why invest in gold. You can buy an inflation index security.

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<v Speaker 2>It gives you a hash against inflation. And he looked

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<v Speaker 2>at me and he said, gold doesn't default. And so

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<v Speaker 2>I don't think the US is going to default either,

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<v Speaker 2>but certainly we have seen that allocation. And again talk

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<v Speaker 2>about back to the future. I mean, central banks have

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<v Speaker 2>been holding gold as a reserve for hundreds of years,

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<v Speaker 2>and so we're sort of getting back into that mindset.

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<v Speaker 1>So, Paul, if gold doesn't default like a gold wedding

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<v Speaker 1>ring and a divorce, is that? Do you want to

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<v Speaker 1>comment now? Thank you Rich.

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<v Speaker 3>As a professor of economics at Club you when you

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<v Speaker 3>have your class or your module on tariffs, how do

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<v Speaker 3>you present tariffs to your students?

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<v Speaker 1>Great question.

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<v Speaker 2>Well, in the throughout most of my career, which dates

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<v Speaker 2>back to the nineteen eighties, tariffs have really not been

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<v Speaker 2>front and center. So I have I actually typically did

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<v Speaker 2>not teach on tariffs. I have I have brushed off

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<v Speaker 2>on if I were to teach it, how I would

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<v Speaker 2>teach it. And what's interesting if you look at MPER

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<v Speaker 2>working papers, there's probably been a half dozen working papers

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<v Speaker 2>in the last six months on tariffs, and in the

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<v Speaker 2>previous forty years there were one or two zero. So

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<v Speaker 2>it is an interest to picking up. But the short

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<v Speaker 2>answer is, tariffs of the scale and scope that we're

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<v Speaker 2>talking about now in the US are something we haven't

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<v Speaker 2>seen in decades, and they have implications for the economy

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<v Speaker 2>across the board. They generate revenue for the government, they

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<v Speaker 2>divert some trade into the US, they onshore some investment,

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<v Speaker 2>and so to actually take tariffs at the level that

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<v Speaker 2>we're seeing now, say ten percent, seriously, is a pretty

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<v Speaker 2>complex modeling exercise with a lot of moving parts. So

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<v Speaker 2>I'll leave it at that.

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<v Speaker 3>So as we think about it here, we haven't seen

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<v Speaker 3>rising inflation. No, we haven't seen materially slower economic growth.

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<v Speaker 3>We see a lot of the surveys at the University

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<v Speaker 3>of Michigan and so on. Yeah, cite some concerns, but

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<v Speaker 3>we haven't seen it in the hard numbers. How do

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<v Speaker 3>you think about the hard data versus the soft data,

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<v Speaker 3>which is something that we've now been introduced to.

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<v Speaker 2>Great question, and let me just say up front, you

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<v Speaker 2>have to knowledge that in the last four prints, the

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<v Speaker 2>January print was more ugly, but February through May in

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<v Speaker 2>the CPI have been coming in much better than expected.

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<v Speaker 2>A lot of folks, including me, thought we would begin

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<v Speaker 2>to see some of the tariff show up in the

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<v Speaker 2>CPI report we got yesterday because it's for the month

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<v Speaker 2>of May, and in the month of May, the government

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<v Speaker 2>was collecting a lot of tariff revenue and it did not.

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<v Speaker 2>And as you mentioned, the economy seems to be holding

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<v Speaker 2>in at roughly trend growth, the labor market holding in

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<v Speaker 2>so so far so good. What it does tell me is,

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<v Speaker 2>at minimum, we're not seeing in the data that US

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<v Speaker 2>companies are using the tariffs as a reason or excuse

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<v Speaker 2>to raise prices preemptively. We may see that once tariff's

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<v Speaker 2>going to go to effect more broadly, but yeah, so far,

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<v Speaker 2>I think you'd have to acknowledge the US economies holding

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<v Speaker 2>up quite well.

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<v Speaker 1>The former vice Chairman of the Federal Reserve System in

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<v Speaker 1>a good conversation here with Richard Clarida this morning, always

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<v Speaker 1>with Columbia University and of course PIMCO as well. Trotting

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<v Speaker 1>out yesterday. I'll give the ft credit. I can't remember

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<v Speaker 1>quite where I saw it is the John Edwards chart

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<v Speaker 1>of two Americas. It is breathtaking on consumption seventy sixty

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<v Speaker 1>nine percent of GDP whatever, fifty x percent. I believe

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<v Speaker 1>it is upper decyle. It is shocking what upper quintile is.

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<v Speaker 1>It is shocking what the bottom third is not consuming

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<v Speaker 1>in America. Does Clarita economics work in the polarity of

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<v Speaker 1>the American consumer? Are we so bipolar? By Barbell? If

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<v Speaker 1>you will, Yeah, the normal fed talk doesn't work.

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<v Speaker 2>Tom, It does work, but you have to recognize it.

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<v Speaker 2>As I think I've said on this show before, I

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<v Speaker 2>think the simplest way to think about it is that

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<v Speaker 2>two thirds of Americans live in a home that they own,

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<v Speaker 2>and around that percentage directly or indirectly owned stock. So

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<v Speaker 2>if you own your house and you own stock, I've

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<v Speaker 2>had a great run for five, you know, fifteen, twenty

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<v Speaker 2>thirty years. But if you don't own your own house,

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<v Speaker 2>you don't own stock. You've been falling further and further behind.

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<v Speaker 2>And that's that's at least a third, maybe more, of

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<v Speaker 2>the of the country. That is a factor in terms

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<v Speaker 2>of the nuts and bolts of how the economy functions,

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<v Speaker 2>how monetary policy is transmitted. So yes, Claria economics works

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<v Speaker 2>in this world, but it only works if you acknowledge

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<v Speaker 2>the divergence in those two parts of the economy.

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<v Speaker 3>Rich if I'm your feder Reserve, I'm taking this summer off.

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<v Speaker 3>I'm going to the beach. I'm not doing anything because

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<v Speaker 3>the data doesn't mean I have to do anything. Is

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<v Speaker 3>that a fair strategy here?

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<v Speaker 2>Well, I certainly don't think they're going to do anything

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<v Speaker 2>next week.

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<v Speaker 4>Come I've got to talk it up the fedicides come

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<v Speaker 4>out of that do anything next week, But there will

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<v Speaker 4>be a press conference, and I think the chair may

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<v Speaker 4>use that as an opportunity to signal the direction of trouble.

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<v Speaker 2>You know, one thing I've picked up on in the

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<v Speaker 2>last week or so is FED speak, not only from

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<v Speaker 2>Chris Waller, but all so President Bostic and President Goulesby.

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<v Speaker 2>That does indicate at least to me that the Committee

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<v Speaker 2>may be open to what some have called a good

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<v Speaker 2>news rate cut. So I have been in this camp,

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<v Speaker 2>which is the Fed's only going to cut rates if

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<v Speaker 2>something breaks the unemployment rate goes up. GDP contracts again,

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<v Speaker 2>simply because it looked like with the initial tariff announcement

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<v Speaker 2>the inflation hit would be so substantial. But given the

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<v Speaker 2>better inflation data, and as I would point out, basic

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<v Speaker 2>Clarita Galley Gertler monetary policy rule right now would have

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<v Speaker 2>the FED cutting rates already, And so I think there

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<v Speaker 2>is a case for them to begin to consider that.

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<v Speaker 2>But I think the inclination probably will be to take

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<v Speaker 2>the summer off.

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<v Speaker 1>And the time we got left. And I won't turn

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<v Speaker 1>this into a Columbia dissertation, but let's go nineteen fifty

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<v Speaker 1>one McChesney Martin. We basically yanked the Federal Reserve system

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<v Speaker 1>away from the Department of Treasury. We have a president

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<v Speaker 1>who wants to yank it back. What stops President Trump

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<v Speaker 1>from putting in FED leadership Fed governors that understand the

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<v Speaker 1>buck stops at the Treasury Building and not at the

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<v Speaker 1>Eccles Building.

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<v Speaker 2>Great question, one that I thought about and lived through

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<v Speaker 2>to some extent. I'll make a couple of points. One,

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<v Speaker 2>the president does nominate FED officials, but to be confirmed

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<v Speaker 2>requires a Senate confirmation process. The Senate is not a

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<v Speaker 2>rubber stamp for FED nominees, and so I think that's

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<v Speaker 2>important also to be candid. I think the market will

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<v Speaker 2>have a say, and particularly for for FED chair and

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<v Speaker 2>I don't think this will happen, but we're the president

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<v Speaker 2>to nominate someone who the markets believe would not be

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<v Speaker 2>committed to price stability and would not be a primarily

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<v Speaker 2>independent I think you'd see stocks down, rates out.

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<v Speaker 1>Okay, but I got I gotta cut you off. This

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<v Speaker 1>is too important with Claria. Are you going to get

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<v Speaker 1>a twenty five basis point pop you, Honor if we

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<v Speaker 1>end up with a Trump chairman, or are you talking

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<v Speaker 1>about a stick where we get out over five percent

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<v Speaker 1>rogue offf even hinted towards six percent given selected events.

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<v Speaker 2>Not a twenty five basis point Yonner. No tangible a lift, yes, yes,

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<v Speaker 2>and weaker risk assets stocks, credit spreads higher, yields higher.

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<v Speaker 2>I just don't think it would stick because I wouldn't

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<v Speaker 2>want to be a nominee coming into my hearing with

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<v Speaker 2>that market reaction to my The other thing, I'll say, Tom,

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<v Speaker 2>and it's a little bit wonkish, but look I'm on

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<v Speaker 2>this show, I can be a little bit of a

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<v Speaker 2>walk is Congress Occasionally Congress knows what it's doing. And

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<v Speaker 2>back in the thirties when the Federal Reserve Act was

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<v Speaker 2>modified and amended, it was amended to disperse the authority

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<v Speaker 2>for raising and lowering rates away from the chair towards

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<v Speaker 2>a committee. So it's the green span Fed, it's the

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<v Speaker 2>pal Fat, it's the Bernanke Fed. But by statute, rate

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<v Speaker 2>decisions are made by a majority vote of a committee.

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<v Speaker 2>Five of the twelve members of that committee a bank

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<v Speaker 2>presidents who are not appointed by the White House. Seven

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<v Speaker 2>of them are obviously upper fullsting governors. And so I

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<v Speaker 2>do think that the system has an intelligent design, and

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<v Speaker 2>so I'm not that concerned about that outcome. But if

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<v Speaker 2>it were to happen, I think Ken is right.

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<v Speaker 1>With Catherine Man of Brandai's holding court at the Bank

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<v Speaker 1>of England. Does the Bank of England get it right?

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<v Speaker 1>In a more fractured and spread out debate versus green

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<v Speaker 1>Spanning and certitude in Washington.

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<v Speaker 2>A various stute comment because not all central banks have

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<v Speaker 2>similar cultures. In fact, I remember a conversation with a

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<v Speaker 2>senior Bank of England officials said that he actually viewed

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<v Speaker 2>it as a as a feature, not a bug, that

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<v Speaker 2>in their system the governor occasionally is on the losing

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<v Speaker 2>side of an interest rate vote. The descent, the culture

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<v Speaker 2>of descent there is much more accepted than at the FED.

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<v Speaker 2>There are descents at the FED. We've actually had some

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<v Speaker 2>from some governors recently, but that is a difference.

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<v Speaker 1>Yeah, brilliant Richard Claire to thank you so much. Thanks

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<v Speaker 1>for being Jimko and of course all he's with Colombia economics,