Bloomberg Talks – Episode Summary

Episode Title:

PIMCO Global Economic Advisor Richard Clarida Talks US Economy, Monetary Policy

Date:

February 9, 2026

Host:

Tom Keene
Guest: Richard Clarida (Global Economic Advisor, PIMCO; former Fed Vice Chair, Professor at Columbia)

Overview

In this episode, Tom Keene interviews Richard Clarida, a seasoned economist, Columbia professor, and former Vice Chair of the Federal Reserve, now Global Economic Advisor at PIMCO. The conversation delves into the future direction of the U.S. Federal Reserve under incoming Chair Kevin Warsh, debates about monetary policy models, Fed-Treasury relations, the impact of tariffs, recent economic data, and the outlook for interest rates. Clarida provides expert insights grounded in his decades-long involvement in academia, central banking, and financial markets.

Key Discussion Points & Insights

1. Role of Academics and Leadership at the Fed

• Clarida’s Influence: Tom Keene credits Clarida for stabilizing and supporting Jerome Powell as Fed Chair with his academic acumen, asking whether new Fed chair Kevin Warsh will need a similar academic vice chair (00:59).
• Clarida’s View: Clarida highlights the importance of complementing various skillsets in Fed leadership but emphasizes there are many qualified individuals on the bench (01:24).

2. Potential Fed-Treasury “Accord” and Portfolio Composition

• Warsh’s Call for a New Accord: The conversation turns to Warsh’s suggestion of a revised agreement between the Treasury and the Fed (02:01).
  • Historical Context: Clarida references the 1951 Accord, which established Fed independence from the Treasury and ended rate caps (02:07).
  • Current Relevance: Any new “accord” would focus more on issues like the Fed’s holdings of mortgage-backed securities and portfolio composition rather than explicit rate controls.

    “I think there are a lot of conversations to have... I think we’re a long way away from any formal accord.” — Richard Clarida (02:07–03:21)

3. Fed Policy Outlook for 2026

• Process and Predictions:
  • Chair Warsh still needs Senate confirmation; it may take some time (03:27–03:33).
  • The current consensus is for at least one rate cut in 2026, possibly down to a 3% terminal rate, depending on economic data (03:33–04:14).

    “If the economic data play out... I think he'll be able to persuade the committee to continue to cut rates down to around 3, 3%.” — Richard Clarida (03:33–04:14)

4. Intricacies of Fed Decision-Making and Reliance on Models

• Philosophy Under Powell: Keene and Clarida discuss whether the Fed’s policy framework is stable or more ad hoc, especially with new leadership (04:51).
  • Clarida on Models: Clarida points out that, despite developing models himself, the Fed has not been wedded to them. He recounts his first speech as Vice Chair, where he argued against limiting monetary policy by traditional models — especially regarding labor market slack (05:23–06:18).

    “Monetary policy is not a problem if too many people are working... the Fed has probably been less handcuffed to models than Kevin’s remarks might suggest.” — Richard Clarida (05:31)

5. What Happens to Ex-Fed Chairs?

• On Powell’s Future: Clarida notes it’s rare for outgoing Fed chairs to stay on as governors and references Mariner Eccles as a historic exception. He doubts Powell will remain after his chairmanship ends in 2028 (06:18–07:14).

6. Dissent and Voting at the Fed vs. Bank of England

• Structure of Decision-Making:
  • The Bank of England encourages dissent and close votes, while the Fed typically has near-unanimity (07:14 – 08:20).
  • Clarida suggests that fostering dissent, as in the UK, isn’t necessarily a weakness.

    “They [Bank of England] actually viewed it as a feature, not a bug, to have close votes encourage thoughtful dissent.” — Richard Clarida (07:46)

7. Fed’s Current Focus: Labor Market vs. Inflation

• Balancing Dual Mandate:
  • Inflation remains above target for several years running; unemployment is viewed as healthy, though payroll gains are modest (08:30–09:30).

    “They have been pretty consistent for a while that inflation’s too high... but... they would not welcome any additional rise in the unemployment rate.” — Richard Clarida (08:37)

8. Economic Modeling and Instability

• Discussion on Macro Models:
  • Keene brings up macroeconomic theory (Woodford, Persad) and whether the real world is more unstable and nonlinear than models suggest (09:54–10:34).
  • Clarida admits most models are only local approximations, and that markets and economies can behave in much more “messy and nonlinear” ways, citing current global turbulence (10:34–11:10).

    “All macro models... are best thought of as approximations... The real world can be a lot messier and nonlinear.” — Richard Clarida (10:34)

9. Tariffs and Economic Impact

• Review and Analysis:
  • Keene presses Clarida for hindsight on the impact of tariffs (11:29).
  • Clarida notes that GDP and inflation were virtually unchanged, with tariffs lower than threatened and partially offset by robust tech capex and absorbed by corporate margins (11:50–13:30).

    “GDP growth didn’t move. Inflation didn’t move... US companies absorbed more of the tariff hit in somewhat reduced margins.” — Richard Clarida (12:32)

10. Interest Rates, Treasuries, and Volatility

• Current and Forward Look:
  • Treasuries have stayed in a relatively tight yield range for over two years; real rates are higher now, so expect a steeper yield curve and more rate volatility than the pre-pandemic era (13:53).
  • The market has already repriced for the new fiscal outlook; most adjustment is “in the price” (13:53–14:57).

    “We think a lot of the repricing that needed to happen because of the fiscal outlook has basically already happened and is in the price.” — Richard Clarida (14:53)

Notable Quotes & Memorable Moments

• On the 1951 Accord:
  “World War II ended in 1945, but the Fed didn’t get the memo till 1951...” — Richard Clarida (02:07)

• On Model Reliance:
  “The Powell Fed and certainly the Clarida Vice Chair was not handcuffed to the models, even though I developed many of them.” — Richard Clarida (05:01)

• On Dissent:
  “The Bank of England actually viewed it as a feature, not a bug, to have close votes encourage thoughtful dissent.” — Richard Clarida (07:46)

• On Tariffs:
  “There’s a saying in baseball, sometimes you’d rather be lucky than good... US companies absorbed more of the tariff hit in somewhat reduced margins.” — Richard Clarida (12:32)

• On Modern Market Conditions:
  “We’re going to probably have... somewhat elevated volatility relative to the decade before the pandemic, in which rate volatility was suppressed through zero or negative [rates].” — Richard Clarida (14:32)

Timestamps for Major Segments

• 00:59: Dual-engine leadership at the Fed and the Powell era
• 02:07: Historical analogy and ramifications of a new Fed-Treasury accord
• 03:27: Warsh’s Fed chair confirmation and rate cut expectations for 2026
• 05:23: Debating the use and limitations of macroeconomic models at the Fed
• 07:14: Discussion on dissent and voting at central banks
• 08:37: Fed’s focus: balancing inflation and labor market health
• 10:34: Nonlinearities in economic modeling (inspired by Woodford/Persad)
• 11:50: Economic hindsight on tariffs’ real impact
• 13:53: U.S. Treasury yields, fiscal outlook, and rate volatility ahead

Tone & Takeaways

The episode is conversational, occasionally playful, yet always steeped in technical expertise. Keene’s probing is met with Clarida’s thoughtful, data-backed responses. Listeners get a sense of how central bank policy evolves, the complexities of modeling macroeconomies, and both the continuity and tension between academic theory and the practical realities of economic policymaking.

For those seeking clarity on the current and future trajectory of U.S. monetary policy, and the big debates inside the Fed, this episode is a must-listen.