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