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