Speaker 1: Bloomberg Audio Studios, podcasts, radio news to Clarida's with.
Speaker 2: Us with PIMCO of Columbia University, always and always the
Speaker 2: vice chairman and former vice chairman, I should say, the
Speaker 2: Federal Reserve System. And I think you know we're going
Speaker 2: to straddle here between Bloomberg money and everything else.
Speaker 3: Yeah, And we got to start with what we saw
Speaker 3: in the bond market this week because we had to
Speaker 3: sell off in the thirty year yield this week reached
Speaker 3: a nineteen year high five point twenty six percent. Rich Clarida,
Speaker 3: does this sell off in the long line tell us
Speaker 3: anything about the US economy and therefore how people's prospects
Speaker 3: might change.
Speaker 4: Well, there are a lot of reasons bond eels can
Speaker 4: go up and down, not just the FED.
Speaker 5: The FED is an important part of it.
Speaker 4: What I would point to is that so far Kevin
Speaker 4: Warsh has been shared really only six seven weeks, but
Speaker 4: an important measure in the bond market, which is break
Speaker 4: even inflation, so sort of traders expectation of inflation is
Speaker 4: ad or below where it was at least out to
Speaker 4: ten years when he became chairman. But certainly the reaction
Speaker 4: during the press conference was probably not one that was welcome.
Speaker 6: Right.
Speaker 3: We know the first Trump administration cared a lot about
Speaker 3: the stock market, and the second one seems to have
Speaker 3: added the bond market to its list of things that
Speaker 3: is watching. Which part of the bond market does this
Speaker 3: administration care most about the thirty year yield?
Speaker 1: The ten year yield?
Speaker 5: Oh my goodness, I'm not sure.
Speaker 4: I would defer, probably as Secretary bust and I do
Speaker 4: think at one point he may have said that he's
Speaker 4: focused more on the ten year yield than he is
Speaker 4: on the Fed funds rate. Well, so much of the
Speaker 4: economy people borrow along for car loans or mortgages or
Speaker 4: corporate loans, and so that's probably what he had in mine.
Speaker 2: Okay, So what we're going to do here, it's Bloomberg money.
Speaker 2: We do personal finance, we do wealth management, we do retirement.
Speaker 2: But we also have Richard Clarita where this is in
Speaker 2: the heart of this debate over the chairman of the Fed.
Speaker 2: So it's going to be a little bit sort of
Speaker 2: like scarfou and Time doing Bloomberg surveillance, like more.
Speaker 5: You protect the children mind or blurry the protect the
Speaker 5: children at home valance?
Speaker 2: Fine, Okay, so the former Vice Chairman with great respect,
Speaker 2: I don't want to turn this into a history lesson,
Speaker 2: but you have Wosh nominally of Stanford talking about the
Speaker 2: Lucas critique and then going over what people don't know
Speaker 2: is you're directly involved with this. Let's first listen to
Speaker 2: Chairman Worsh on Wednesday.
Speaker 6: Some version of the Lucas critique should remind us that
Speaker 6: when we talk about measures of inflation or something else,
Speaker 6: and we describe those measures as being consistent with our objectives,
Speaker 6: we might make them such that they're not very good
Speaker 6: measures or very good objectives.
Speaker 2: The chairman, before we had the questions to Michael McKee.
Speaker 5: Of Bloomberg, the world lit up.
Speaker 2: An along with legit cred out of Lucas's Chicago was fiery.
Speaker 2: The news conference was rich in philosophy, process and institutional aspirations,
Speaker 2: but poor in operational guidance. The absence of Clarida like
Speaker 2: analytical specificity appears to have spoken louder.
Speaker 5: Than Worsh's words. So Lucas did what he did.
Speaker 2: CGG, Clarida, Galli, and Gertner reinvented modern economics with something
Speaker 2: called dynamic stochastic general equilibrium theory. We come out now,
Speaker 2: And as Claudia sam says, we have a chairman who's
Speaker 2: not sure what he's looking at an inflation How does
Speaker 2: he get the burls Macon. Does he need to reaffirm
Speaker 2: PCE is the inflation series?
Speaker 4: Well, I think what he said at the press conference
Speaker 4: is for now until next January at least that's going
Speaker 4: to be correct. So the FED adopted that again in January.
Speaker 4: He left open the possibility that the task forces could
Speaker 4: recommend other measures. They could go to an average instead
Speaker 4: of picking one INDUX, they could look at CPIPPI. There
Speaker 4: are a lot of things they could do. But I
Speaker 4: think Anna as usual raised is an important point is
Speaker 4: that an inflation targeting central bank needs to be clear
Speaker 4: about what it is is targeting.
Speaker 5: It can and.
Speaker 4: May evolve, and so I think that will be important
Speaker 4: very importantly.
Speaker 2: Then here if we need to get the system back
Speaker 2: with a confidence about the.
Speaker 5: FED, Yeah, how does he do that?
Speaker 2: At Jackson Hole?
Speaker 5: Does he have to reaffirm, as.
Speaker 2: Somem says, that inflation is the appropriate measurement and not
Speaker 2: a policy.
Speaker 4: Well, I think Jackson hole may serve a couple purposes. Historically,
Speaker 4: as we've seen, chairs have used Jackson hole as sort
Speaker 4: of a sneak preview of coming attractions at the September, November,
Speaker 4: and December meetings.
Speaker 5: Chairman war Shennity may do that.
Speaker 4: He's also interested in what he called some big question,
Speaker 4: big picture questions that he sort of previewed at this meeting,
Speaker 4: and he's also talking to the task forces. So I
Speaker 4: think it's too early to tell what he'll do at
Speaker 4: Jackson Hole, but he may do that as well.
Speaker 3: I find it really interesting that he doesn't want to
Speaker 3: tell the bond market a whole lot of things, and
Speaker 3: he's kind of waiting to take his cue from the
Speaker 3: bond market. From a lay person's one of you, it
Speaker 3: feels very circular, right. The Central Bank sets a benchwork
Speaker 3: indust rate, the bond market.
Speaker 1: Takes its que from that.
Speaker 3: What's the rationale for the FED to take its queue
Speaker 3: from the bond market that's relying on the FED to
Speaker 3: set policy.
Speaker 1: Help me understand that.
Speaker 4: So here's the way I would express it. The FED
Speaker 4: is a very important part of ten year treasury yields.
Speaker 4: It's not the only thing that drives yields. So I
Speaker 4: think the chairman was important to emphasize that the FED
Speaker 4: does want to step back and inter movements in bond yields.
Speaker 4: It could be inflation, it could be global growth, Middle
Speaker 4: East hostilities, but certainly the Chairman and the Fed understands
Speaker 4: that an important part of tenier yields is the expected
Speaker 4: path of the funds rate. And to Scarlett's point, and
Speaker 4: I actually Ben bernanke gave it a speech on this,
Speaker 4: as did I as Vice chair. It's called sometimes called
Speaker 4: the hall of mirrors problem in central banking, which is
Speaker 4: the central bank looks at the market, the market looks
Speaker 4: at the central bank.
Speaker 5: It could get circular.
Speaker 2: Let's go back to your page. Galli and Gertler didn't
Speaker 2: know this. Richard claareda channeling Alan Blinder. Having looked at
Speaker 2: monetary policy from Joni Mitas both sides, now I can
Speaker 2: testify that central banking in practice is as much an
Speaker 2: art as a science. How does worsh get back to
Speaker 2: science to Clariita silence versus some mom and pop philosophy
Speaker 2: you learned at Stanford.
Speaker 4: Oh well, I think Kevin Walsh and the committee understand that. Look,
Speaker 4: Kevin came in, Chairman Warsh came in with an ambitious agenda,
Speaker 4: and I think that they're going to both focus on
Speaker 4: implementing that agenda as well as getting to where they
Speaker 4: need to be on policy. I guess where I would
Speaker 4: try to relate Clarita Galley Gertler to the current conversation
Speaker 4: is perhaps specifically in the domain of forward guidance, and
Speaker 4: so in the CGG model there's actually not a role
Speaker 4: for forward guidance because the market understands the FED reaction
Speaker 4: function and the FED understands the market. If you're not
Speaker 4: going to do forward guidance, then it's incumbent for the
Speaker 4: markets to have a broad understanding of how the central
Speaker 4: bank will re act to data. If we had six
Speaker 4: bad months in a row of inflation data, would they
Speaker 4: hike and by hand much? They're not committing to that,
Speaker 4: but they're saying if the data comes out this way, For.
Speaker 2: Everybody on Bloombered Money and Scott I got goosebumps. This
Speaker 2: is like the real deal. I mean, this is what
Speaker 2: the adults in the room are arguing about right now.
Speaker 3: Well, for people who are watching this and don't quite
Speaker 3: know all the names that you and Rich are throwing
Speaker 3: out there, I want to bring it back to the
Speaker 3: real economy and to real people's concerns. Do you agree
Speaker 3: with those people who say that we have a K
Speaker 3: shaped economy where the higher income and asset owners are
Speaker 3: doing well and everyone else is kind of struggling that
Speaker 3: downward arm.
Speaker 1: And if so, how do we solve for that?
Speaker 4: Well, Yes, broadly we do and have had a K
Speaker 4: shape economy for some time, but the K, the branches
Speaker 4: of the K, have been diverging more widely in the
Speaker 4: last six or seven years. The way I like to
Speaker 4: think about Scarlett is roughly sixty percent of Americans live
Speaker 4: in a house that's owner occupied housing, sometimes with their parents,
Speaker 4: but it's owned about forty percent rent. That sixty percent
Speaker 4: owned stocks, most of the other forty percent doesn't. So
Speaker 4: we've been in an economy for some time, but especially
Speaker 4: in the last six years when stocks have gone up,
Speaker 4: house prices have gone up. So the top of that
Speaker 4: K is doing pretty well. If you're in the other
Speaker 4: part of the K, you don't own your house, you
Speaker 4: don't know a lot of stocks, you're living paycheck to paycheck.
Speaker 5: It's it's been a tough.
Speaker 4: Six years, and so there's there's no doubt we're in
Speaker 4: a case shay to.
Speaker 1: The services costs just keep getting more expensive as well.
Speaker 5: Lumbered.
Speaker 3: Money is about how you invest and make your money,
Speaker 3: but it's also about how you spend your money. So
Speaker 3: Rich Clark, I want to ask you on this Friday,
Speaker 3: what's your splurge?
Speaker 1: First of all? And how do you save? What do
Speaker 1: you save? Well?
Speaker 5: I leave the saving to my wife. She's she's pretty
Speaker 5: good at it.
Speaker 4: My splurge is on My hobby is music, So I
Speaker 4: buy guitars, I buy recording equipment.
Speaker 5: Really, I als spend money. I'm recording my album. So yeah,
Speaker 5: that's my splurge.
Speaker 1: Didn't reach a recording album in twenty sixteen, I.
Speaker 4: Did available Spotify, Apple Music stream for free on YouTube.
Speaker 4: The new album's coming out later this year. Maybe we'll
Speaker 4: do a rollout party on this show.
Speaker 1: Oh it's a follow up. Yeah yeah, Well what's it called.
Speaker 5: It's gonna be called Take two?
Speaker 1: Take two? Okay? And what folk music?
Speaker 3: Like?
Speaker 1: What's your vibe?
Speaker 5: Olk rock? Yeah?
Speaker 4: Folk ross someone who listened to too many Beatles albums.
Speaker 2: And I will editorialize as I've heard it. It is
Speaker 2: not a vanity album. It is exquisite.
Speaker 5: I was shocked.
Speaker 4: Well, thank you really really quite thank you?
Speaker 3: Quit and you're the solo star like I don't hear
Speaker 3: a band name in there.
Speaker 4: I write the songs and do the vocals, but I
Speaker 4: work with professional studio musicians in London, LA and Nashville.
Speaker 4: So all the music you hear is really good playing
Speaker 4: and then I do some singing on it.
Speaker 3: All right, Richard Clarts a new album coming out with
Speaker 3: Day Well by.
Speaker 5: December thirty first.
Speaker 3: By December thirty first, Richard Claiter to thank you so much,
Speaker 3: called Global Economic Advisor, the former Federal Reserve Vice chairman,
Speaker 3: and of course Columbia University professor as well