Global Economic Advisor at PIMCO & Former Fed Vice Chair Richard Clarida Talks Geopolitical Risk and the Fed

Summary

Bloomberg Talks Podcast Summary

Episode: Global Economic Advisor at PIMCO & Former Fed Vice Chair Richard Clarida Talks Geopolitical Risk and the Fed
Date: March 25, 2026
Host: Bloomberg
Guest: Richard Clarida (Global Economic Advisor at PIMCO, Former Fed Vice Chair, Columbia Professor)

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Episode Overview

In this episode, Bloomberg hosts engage Richard Clarida, a prominent economist, on topics ranging from the structural dynamics of the U.S. economy (“K-shaped” recovery) and central bank policy responses to geopolitical shocks, to the labor-market implications of AI and Federal Reserve leadership transition. The conversation steers clear of technical monetary debates, favoring accessible, big-picture economic analysis packed with academic insight, real-world Fed experience, and practical observations on modern challenges.

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Key Discussion Points and Insights

1. The “K-Shaped” U.S. Economy

Timestamp: 01:29 – 03:15

• Defining “K-Shaped” Recovery:
  Clarida affirms that the U.S. economy has long trended toward a “K-shaped” dynamic—meaning some groups (e.g., homeowners, stockholders) have prospered while others lag. He attributes this acceleration to the pandemic and the subsequent policy responses:

  • "We’re definitely in a K shape economy. I think we’ve been moving in that direction for 30 years. The events with the pandemic, the policy response and the like amplified some of those trends." (Clarida, 01:55)

• Fed’s Role and Limitations:

  • The Fed’s toolkit (e.g., rate cuts) supports the labor market but also boosts asset valuations, which disproportionately benefits the wealthy.
  • “Central bankers understand that, but their toolkit is really pretty limited.” (Clarida, 02:55)

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2. Central Banks Responding to Geopolitical Shocks

Timestamp: 03:15 – 04:24

• On Black Swans (e.g., War in Iran):
  • The Fed examines historical precedents, but each crisis is unique. Clarida notes that while the U.S. is an energy exporter now, high energy prices still slow the economy and erode real incomes.
    • "It’s difficult to predict black swans almost by definition. [...] In the Fed’s models it’s still the case that when energy prices go up, the economy slows. [...] The US is not insulated from this shock." (Clarida, 03:28)

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3. The Stress Points of Continued Inequality

Timestamp: 04:24 – 05:55

• Hosts reference Karl Marx and inquire whether growing inequality is reaching a breaking point.
  • Clarida acknowledges increasing stress since 2020 but recalls recent periods of improvement: “During my time at the Fed, it was one of my focus. That’s one reason why the Fed got a lot of criticism for cutting rates in 2019, because the unemployment rate was below 4%. [...] Let’s see how the economy operates. And I think that was a positive development.” (Clarida, 04:58)

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4. Fed’s Current Policy Stance

Timestamp: 06:05 – 06:48

• Economic fundamentals (growth and full employment) suggest the Fed can “stand down” for now.
  • “They’ve pretty much signaled that the existing Fed... is happy right now to step back, see how the economy evolves with its energy shock. [...] Most members... still see at least one cut this year and next year as appropriate.” (Clarida, 06:14)

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5. Ex Ante vs. Ex Post Policymaking

Timestamp: 06:59 – 08:14

• Debate on Predictive Policymaking:
  Host distinguishes between reacting to economic data (ex post) and anticipating issues (ex ante). They cite Governor Myron’s advocacy for more proactive moves.
  • Clarida is skeptical: “You’d have to look pretty long and hard to find that... Models are tools, but they’re backward looking.” (Clarida, 07:38)
  • On differing views about the neutral rate: “Governor Myron has made... an individual belief that the neutral interest rate... is well below the current level... I don’t think that is the view on the committee.” (Clarida, 07:51)

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6. Fed Chairmanship Transition Uncertainty

Timestamp: 08:14 – 09:12

• Clarida outlines hurdles for Kevin Warsh to become Fed Chair, focusing on Senate confirmation procedures and current political holdups.
  • “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.” (Clarida, 08:27)
  • He expects resolution in time, but not necessarily by the June meeting.

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7. AI and the Labor Market

Timestamp: 09:12 – 11:08

• AI: A Job Creator or Loser?

  • “Right now, it doesn’t appear to be either in the data. [...] 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.” (Clarida, 09:39)
  • “We don’t hire a lot of employees who say part of my job description is ‘I’m going to hallucinate.’” (Clarida, 10:07)

• AI as a Driver of Traditional Industry:

  • Major AI benefits require upfront investment in data centers and power, stimulating old-economy sectors.
    • “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.” (Clarida, 10:49)

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8. Jerome Powell’s Legacy

Timestamp: 11:10 – 11:52

• Clarida reflects on Jerome Powell’s leadership and priorities:
  • “He wants to make sure that it says something along the lines, as Chair Powell restored price stability and maintained the Fed’s independence. And I think that he is going to achieve that.” (Clarida, 11:29)

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Notable Quotes & Memorable Moments

• “History doesn’t repeat, but it rhymes.” (Clarida, 03:31, paraphrasing a famous phrase)
• “Hallucination is a feature, not a bug [of current AI].” (Clarida, 10:05)
• On the Fed’s predictive challenges: “Models are tools, but they’re backward looking.” (Clarida, 07:38)
• “We don’t hire a lot of employees who say part of my job description is ‘I’m going to hallucinate.’” (Clarida, 10:07)
• On Powell’s obituary: “...Chair Powell restored price stability and maintained the Fed’s independence. And I think he is going to achieve that.” (Clarida, 11:29)

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Conversation Highlights with Timestamps

• K-Shaped Economy: 01:29 — 03:15
• Central Banks & Black Swans: 03:15 — 04:24
• Stress from Economic Inequality: 04:24 — 05:55
• Fed Stance (Current & Future Cuts): 06:05 — 06:48
• Policymaking Philosophy (Ex Ante vs Ex Post): 06:59 — 08:14
• Fed Leadership Politics: 08:14 — 09:12
• AI’s Impact on Jobs and the Real Economy: 09:12 — 11:08
• On Jerome Powell’s Value: 11:10 — 11:52

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Tone and Style

This episode blends academic rigor with practical economic commentary, eschewing technical jargon for accessible analogies and historical context. Clarida’s measured, informed responses interlace macroeconomic theory, policy experience, and a dash of humor (especially on AI’s “hallucinations”), appealing to both experts and lay audiences.

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For Listeners Who Missed the Episode:

This conversation offers a wide-ranging, grounded perspective on the interconnectedness of monetary policy, economic inequality, political uncertainty, rapid technological change, and the pressures facing modern central banking leadership. Richard Clarida’s clear-eyed analysis and the hosts’ approachable style make complex topics understandable and relevant.

Transcript

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[Podcast Announcer]

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[Interviewer/Host]

Okay folks, what we're going to talk about you, we're not going to talk dsg, we're not going to talk integrals within integrals or derivatives. The mathiness that Richard Claret is 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 Clarida, 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.

[Richard Clarida]

Yeah.

[Interviewer/Host]

You dealt with Jeff Sachs with all of his ability in that you have Ned Phelps with this massive eclectic view over, over time.

[Interviewer/Co-host]

Great.

[Interviewer/Host]

Columbia owns the social analysis. Good morning Chicago. And Mr. Becker, you own the social analysis of this case Shaped Economy. Jeff Sachs wrote a book 20 years ago. I'm going to say that was way out front on this. How K shaped are We? When you talk to your friends and Romans and countrymen in Columbia. How K shaped are we now, Dr. Clarida?

[Richard Clarida]

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, for 30 years. Not in a straight line but, 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, if you own your home as 60% 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, of the country that has not been participating. Maybe if I can just parachute a bit in on this, you know, the Fed, when the economy slows, you cut rates and I certainly did that at my time at the Fed. And the Fed understands that when it lowers rates it's going to support the labor market, which is good. And for a lot of people that that is their stake in the economy is their job. But low rates also lead to higher asset valuations and also leads to some of the trends that you've mentioned in the K 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.

[Interviewer/Co-host]

How does the Federal Reserve or any central bank deal with a black swan like, oh, I don't know, a war in Iran that came out of nowhere? I mean, how does a Fed typically look at those types of events?

[Richard Clarida]

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, his 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 also have to factor in, Paul, that it's a different US economy than, you know, back in my college years in the 1970s in particular, the US is in that energy exporter. Important, however, is in the Fed's 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 erodes 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 better be an exporter than an importer. But the US is not insulated from this shock.

[Interviewer/Host]

My Karl Marx comes from the giant Thomas Sowell out at Hoover and and also from my great mentor in London, Magda Desai, 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, ever more divided and there's corrective solutions. Do you worry that within all of the institutions, if you've as you've represented, that we're getting to stress points where it falls apart?

[Richard Clarida]

Well, I'm not sure of that, but certainly the trends as I mentioned since 2020 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 pandemic, you actually had some of those K shaped trends reversing and improving Lower decibels. And I can certainly tell you that during my time at the Fed, it was one of my focus. That's one reason why the Fed got a lot of criticism for cutting rates in 2019, because the unemployment rate was below 4%. And some models were saying, oh, you can't operate the economy below 4% 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.

[Interviewer/Co-host]

One could argue, I mean, the war notwithstanding, the economy is generally performing well in terms of growth. The unemployment still looks like at or near full employment.

[Richard Clarida]

Sure.

[Interviewer/Co-host]

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?

[Richard Clarida]

I do. I think that they've pretty much signaled that the existing Fed, before Kevin Warsh arrives, is happy right now to step back, see how the economy evolves with its energy shock. It is interesting though 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, more times. But it may not happen for a while.

[Interviewer/Host]

Richard Claire with us folks of Columbia, of course, of Pimco as well. Global economic adviser and the former chair of the Federal Reserve. Former vice chair. I was going to give you a promotion there.

[Richard Clarida]

I'm sorry.

[Interviewer/Host]

Former vice chair, the Federal Resistance. I got to get you in trouble. Myron was in. Governor Myron was in with John Farrell. John, I thought was great. There's a Fed reacting after the fact, folks. John Tucker told me the Latin is 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 ex ante. Is there any evidence of a successful central bank trying to get out front of the model?

[Richard Clarida]

Well, you'd have to look pretty long and hard to find that old or the New 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 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.

[Interviewer/Co-host]

You mentioned Mr. 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.

[Richard Clarida]

Well, I think it's, it's pretty clear now that in order to become 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, 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 Powell 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, but we do think eventually that it will get resolved.

[Interviewer/Host]

The first thing I did with AI yeah Tom Secunder, one of our founders grabbed me by the Cheez its rack in the food court, said that we need a briefing and his Mr. Secunda, his leadership folks on AI is noted across a 10 state area. Richard Clarity, he said here's a. I get up to speed on it. Richard Clarity is up to speed on AI right now. Is it a job creator or is it a job loser?

[Richard Clarida]

Well right now it doesn't appear to be either in. In in the data and I think there is 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 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 a Bloomberg, 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.

[Interviewer/Host]

You and I used a careful and answer slide rule. Okay. The only way you can learn logs As a slide rule. Remember when the Hewlett Packard. Only the rich kids had the Hewlett Packard calculation reverse.

[Richard Clarida]

What was it called?

[Interviewer/Co-host]

Reverse polish notation.

[Richard Clarida]

Reverse polish notation.

[Interviewer/Host]

I got one on my, my phone here.

[Richard Clarida]

Yeah.

[Interviewer/Host]

But to me it's the same shift where the professors are going mental in classic use your calculator and all that. And we're just going to get. We're going to deal with it.

[Richard Clarida]

I think we're going to deal with it. Yeah. And remember that near term, in order to get that 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.

[Interviewer/Host]

One final question.

[Richard Clarida]

Yes, sir.

[Interviewer/Host]

Jerome Powell.

[Richard Clarida]

Yeah.

[Interviewer/Host]

You've been a staunch defender of him. He's had a pretty good 10 days a week here.

[Richard Clarida]

Yeah.

[Interviewer/Host]

And the governor is well under duress. What's his value add to the American people to serve out all of his different tenures?

[Richard Clarida]

Well, I think it's important. I think Jay 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.

[Interviewer/Host]

Thank you so much. Richard Claire, to come in. Was this okay that we didn't do monetary parlor games?

[Richard Clarida]

Can I also say it must be opening day because Mr. Keane's wearing a tomorrow, probably for the Red Sox. Mr. Sweeney, of course. My God, where's the Duke?

[Interviewer/Co-host]

Oh, I know Duke.

[Richard Clarida]

Are you going to the game?

[Interviewer/Co-host]

Not going to the game, but it'll be a great game against San Jose.

[Interviewer/Host]

I'm afraid to ask. How's your bracket?

[Richard Clarida]

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 gotta tell you. Well, what is this? Playing a tournament game on a home court for the number two seed.

[Interviewer/Host]

Do they have a bracket pool at the fed?

[Richard Clarida]

Oh, yeah.

[Interviewer/Host]

PhDs, all the staff.

[Richard Clarida]

I think so.

[Interviewer/Host]

There's some rigor there that, you know, like Vince Reinhart years ago was winning three years in a row.

[Richard Clarida]

Anyway, go online.

[Interviewer/Host]

Okay. Richard, Claire, thank you so much. Greatly, greatly appreciate it.

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