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

Summary

---

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.

Transcript

[Bloomberg Host]

Bloomberg Audio Studios, podcasts, radio news.

[Tom Keene]

Unfortunately, he's been dreading this all week. Richard Claire with us now. His work at Columbia University, definitive on fancy economics called Dynamic Stochastic General Equilibrium Theory. Holding court at the Fed as vice chairman. I'm not going to mince words and frankly, Professor Claire, I'm. Are you still at Columbia?

[Richard Clarida]

I am.

[Tom Keene]

You get a piece of chalk out every. See, the problem is, Xavier, Sally Martin wouldn't allow AI in the class. You would allow AI in a freshman class to make the kids smarter, right?

[Richard Clarida]

I don't, I don't, I don't teach a freshman anymore.

[Tom Keene]

But would you let AI in the class?

[Richard Clarida]

Well, not in the classroom, but when I teach, I assume the students are making reference to it, which is why I've actually put a focus on having in class presentations.

[Tom Keene]

There you go.

[Richard Clarida]

There you go. Old fashioned Socratic dialogue.

[Tom Keene]

I'm going to cut to the chase Socratic dialog. You saved Jerome Powell, folks. I'm not going to mince words about it. It's called a dual engine leadership model and it was cleared as vice chairman and a guy from Wall street as chairman. And when he came in, you allowed him to relax and grow with your prodigious academic abilities. Does Chairman Warsh need a Clarita?

[Richard Clarida]

Well, that, that'll be his decision. I enjoyed my, my four years. That's, that's for sure. But there are a lot of good people at the Fed and I think that's a decision he'll, he'll make. He's got a very good vice chair right now and Phil, at Phil Jefferson. But, but at some point there will be a vice chair vacancy.

[Tom Keene]

Is that something that the committee, when he goes in front of these tough guys in the Hill, they can demand he have a vice chair of the academic skills of you.

[Richard Clarida]

Well, it's not clear that that's what would be on their. But possibility, I suppose. I mean they could request that certainly.

[Guest or Panelist]

Kevin Warsh has called for a new accord with the Treasury Department.

[Richard Clarida]

Yeah.

[Guest or Panelist]

What does he mean by that?

[Richard Clarida]

Well, you know, this is one of those things where this is very, what they call in D.C. very big tent language. It means different things to different people. The one accord that we do know about, which is the one that was struck in 1951 between the treasury and the Fed, was, was a signal moment in Fed independence because they got the Fed out of the business of essentially capping treasury yields. In fact, as I like to teach my students, we all know that World War II ended in 1945, but the Fed didn't get the memo till 1951 because the Truman administration pressured the Fed to keep a cap on rates. The Fed declare independence in the accord. I think now if there is a Treasury Fed accord, it would not be so much focused on that. It would be focused on, for example, should the fed a whole $2 trillion of mortgage backed securities, should the Fed the composition of the Fed's portfolio really be tilted toward T bills and less from holding 10 and 30 year treasuries. So I think there are a lot of conversations to have and even during my time on the Fed there were discussions before the pandemic about rethinking the Fed's portfolio composition. So I think that's entirely appropriate. But I think we're a long way away from any formal accord.

[Guest or Panelist]

So what do you expect this Federal Reserve to do in calendar year 26?

[Richard Clarida]

Well, first we have to, we have to get the chair confirmed.

[Guest or Panelist]

He's not a foregone conclusion.

[Richard Clarida]

I think once he has a hearing he will get confirmed because he's very well qualified and but it may be maybe a while before he has a hearing. I think it's important to note that the Powell Fed in December when they released those dots, those famous or infamous dodge, the Powell Fed or at least a majority of the Fed in December thought at least one rate cut this year would be appropriate. And I think eight folks thought maybe two rate cuts would be appropriate. So I do think that when Warsh gets in, if the economic data play out the way that I and others expect, I think he'll be able to persuade the committee to continue to cut rates down to around 3, 3%.

[Tom Keene]

Okay, Richard cleared over this folks. The former vice chairman of the Fed, hugely visible, does a great job helping us. On the Fed day, the Fed decides thrilled he could be in studio with us for you across the nation and around the world. Thank you for your attendance on YouTube. Subscribe to Bloomberg podcast I look at all this, I look at the parlor game and just what it comes down to is staggering. From meeting for meeting. When Mr. Warsh joins, do we have a theory of monetary policy or is it every president and governor for themselves?

[Richard Clarida]

Tom, fantastic question because I do think that based upon what Kevin has said with his very voluminous paper trail over the last 15 years, I think that will, I think that will be a discussion. I think Kevin has expressed some skepticism for reliance on what he believes are flawed models, too much of a backward looking approach. What I would point out at least during my four years is the power Fed and certainly declared a vice chair was not handcuffed to the models, even though I developed many of them.

[Tom Keene]

I give you great credit. I'm going to. Paul, can I. Editorial. I give you great credit for this. You are the one person who could have said we'd go for the models.

[Richard Clarida]

Well, well. And in fact, my first speech In October of 2018, I basically made the case that the economy appeared to have stronger growth potential and a potential for lower unemployment than the Fed models thought, and that the Powell Fed should be willing if the labor market was continuing to blossom and inflation didn't appear to allow that to happen. In fact, I think I said, you know, monetary policy is not a problem if too many people are working. Right. And indeed the Powell Fed cut rates in 2019 with an unemployment rate at a 50 year low. So I think the Fed has probably been less handcuffed to models than Kevin's remarks might suggest. But I certainly think based upon that, there will be a discussion of, of the best way to incorporate modeling into Fed analysis.

[Guest or Panelist]

What happens to Jay Powell when he does step down from the Fed? Does he stay on the. At the Fed? Does he leave? Typically they ride off into the sunset, right?

[Richard Clarida]

They do. In fact, there's only one example in Fed history of a chair that did not write off into the sunset. And a very important Fed chair, gentleman named Marino Eccles. So important he has a building named after. Okay. And, and Eccles was an FDR appointee. And when Harry Truman came in, Harry Truman wanted a different Fed chair, so. But Eccles stayed on for four years as governor and actually turned out to be a real thorn in FDA and Harry Truman's side. But fast forward to Powell. You know, Jay Powell has been asked many times, including at the most recent press conference, what his intentions are when his term as chair is up and he's really not commented. So there's the possibility he could stay on. I myself think that it's unlikely that he stays on for the remainder of his term, which goes through 2028.

[Tom Keene]

Richard Clarita with this. So we did a Bloomberg function. It was great. Michael McKee organized it. It was all these worthies in the audience. Catherine Mann comes up and gives me a hug. The queen of dissent over at the bank of, of England. What's wrong with us being like the bank of England? And they come out like a Supreme Court decision. Oh no, it's a Fed meeting, five to four and the chairman voted against the majority. Is that a bad thing?

[Richard Clarida]

I don't think it's a Bad thing. I think the bank of England really, beginning under Mervyn King's tenure.

[Tom Keene]

Yes.

[Richard Clarida]

Actually viewed it as a feature, not a bug. To have close votes encourage thoughtful dissent. And as I recall, the Governor has been on losing side on some votes. They're unusual in Fed history. In fact, I did prepare for your show. I went back and looked. St. Louis Fed has a great database on this and you'd have to go back to 1930, 1939, the last time a chair actually lost an FOMC vote and that was Mariner Echols. But G. William Miller and Paul Volcker lost votes on discount rate adjustments. But again, we're going back 40, 50 years.

[Tom Keene]

Did you hear what he said? Do you prepare for this show?

[Richard Clarida]

Of course.

[Tom Keene]

Are you kidding me?

[Richard Clarida]

You'd be the only one.

[Guest or Panelist]

Richard, what's the Fed focusing on now? Is it, is it the labor market? Is it inflation? Where's the balance these days?

[Richard Clarida]

They've been pretty consistent for a while that inflation's too high. It's been above target for five years. It'll probably be above target this year for six years. But the Fed has a dual mandate. And the unemployment rate is basically right now at a point that they think is, is consistent with a healthy labor market. But they are noticing that payroll employment gains have been very modest indeed. When we get the revisions later this week, it actually may show negative payroll gains in the second half of the year. And, and, and so I do think that I take them at their word when they say they would not welcome any additional rise in the unemployment rate. And I think they would react to that. But so long as the economy sort of churns along as people expect, I think they are trying to balance that against their concerns about elevated inflation.

[Tom Keene]

Paul Sweeney with Richard Clarida right now. Can I ask that, can we go nerd right now? Freezing money? Okay. Did you recruit Woodford to Columbia? Was that your train?

[Richard Clarida]

I was not sure when Mike was recruited that, that, but I certainly was enthusiastic and worked hard on getting him to Columbia, which was a huge appointment for Columbia. Now, 22 years ago, Michael Woodford, folks.

[Tom Keene]

It'S a thousand page book. Everybody owns it. Martin Feldstein once said, Tom, no one's ever read it cover to cover. Clarity.

[Richard Clarida]

I have.

[Tom Keene]

But, but the bottom line, and I'm bringing this up folks, because we had an Ezra Persad the other day from Cornell with this wonderful important book out Doom the Doom Loop. A really important book.

[Richard Clarida]

Yeah.

[Tom Keene]

And the bottom line is we assume Woodford, like Euler equations, they come down to a point of stability. And within the system there's stability, result of stability. And Professor Persad is saying, no, it's not. They're going to go out on the x axis and be unstable. Discuss.

[Richard Clarida]

Well, okay, I think at a 30,000 foot level in 30 seconds, all macro models, or almost all macro models really are best thought of as approximations, typically linear in a neighborhood of where you want to be. And the real world can be a lot messier and very nonlinear. A term that I know pops up on this show and I think what is, I've just beginning to read his book, but he's been highlighting is we could be in a prolonged period of very nonlinear market and economic development and geopolitical development as well.

[Tom Keene]

So if you're halfway through the book, he sold the movie rights DiCaprio's plan. I mean, it's a gloomy book. It's shockingly gloomy.

[Richard Clarida]

Yeah. Yeah. Again, I have not, I've not, I've not worked through it, but certainly a must read for, for me. So I'll wait till I finish it before I weigh.

[Tom Keene]

Okay, fair.

[Guest or Panelist]

Hey, Richard, we're, we're 13 months into this whole tariff thing. I'm going to look back on and say, boy, this was nothing. It didn't seem to be that big of an issue. And that's not what I heard early on. I heard a lot of folks saying, boy, this is going to be inflationary and so on and so forth. We just haven't seen it. So with a little bit of hindsight, what's happened?

[Richard Clarida]

So let me reinforce what you said. When, when we, eventually, when we get the data for 2025, it may show GDP growth the same as it was in 2024, maybe down a tenth. It will likely show inflation unchanged from 2024. And so a future historian may well say what you just said, which is what was the big deal? GDP growth didn't move. Inflation didn't move. I think a couple of things. One is that the ultimate tariffs put in place were a lot lower than the Liberation Day levels. And as Best and has emphasized, that was part of the negotiating strategy. Secondly, you know, there's a saying in baseball, sometimes you'd rather be lucky than good. I think the other thing that happened is whatever headwind there might have been from tariffs counterfactually was offset by the buoyant Capex spending, especially by the tech companies, and the fact that the stock market is very optimistic on, on, on this story. So that generates a wealth effect and an investment effect. And Then thirdly, US companies absorbed more of the tariff hit in somewhat reduced margins. And you know, in the aggregate they did have that room. Profit margins have been very healthy and, and they didn't pass it through the to the consumer. And again, of course we have the IA decision the Supreme Court is about to release and that may further lead to lower adjust. Put it this way, I think if you calculate the actual the tariff revenue we're collecting divided by imports, it's coming in at about 10% and Liberation Day was like 35%. So that's sort of the order of magnitude.

[Tom Keene]

I got eight other questions. I got to squeeze us in to be responsible or zag imposed in creating a firestorm with an idea of resilient higher rates or even driving higher rates somewhat due to the surprise of higher wages. Writing this up at the Peterson Institute, do you at PIMCO worry about price down, yield up?

[Richard Clarida]

Well, you know we get paid to worry about it. What we do observe, at least in the treasury market is the fact, which is really since the last Fed rate hike, which was two and a half years ago, 10 year treasury yields have been in a pretty tight range. Four and three quarters at the high end, three and three quarters at the low end. Now that also needs, you also need to note that underlying real rates which we can see from the inflation index bond market are much higher than they were in 2019. And so we're going to have a steeper yield curve than we did pre pandemic, which is a good thing. I think we're going to probably have elevated somewhat elevated volatility relative to the decade before the pandemic in which rate volatility was suppressed through zero or negative. Remember at one point I think in Europe there was like $18 trillion of negative yielding sovereign debt. So. So we do pay attention to it. But 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.

[Tom Keene]

I am begging when you get through the doom loop.

[Richard Clarida]

Yeah.

[Tom Keene]

When I get through the doom.

[Richard Clarida]

Yeah.

[Tom Keene]

Yeah. Can I would be honored to have you and Prasad in the same studio together. Would be like, like a service.

[Richard Clarida]

Yeah.

[Tom Keene]

To a lot of people thinking about this. His public service to the nation at the Federal Reserve System, Richard Clarity. He is global economic adviser at pimco.

[Bloomberg Host]

This message is brought to you by Apple Card. It's a great time to apply for an Apple Card. You'll love earning unlimited daily cash on every Purchase. That includes 3% daily cash when you buy the latest iPhone, AirPods and Apple. Watch at Apple through this special referral offer. When you get a new Apple Card, you can earn bonus daily cash. To qualify, you must apply at Apple Co getdailycash Apple Card issued by Goldman Sachs Bank USA Salt Lake City Branch offer may not be available elsewhere. Terms and limitations apply.