Podcast Summary: Odd Lots – "How a Former Fed Vice-Chair Is Thinking About the Next Fed Chair"

Date: February 6, 2026
Hosts: Tracy Alloway and Joe Weisenthal (Bloomberg)
Guest: Richard Clarida (Former Fed Vice Chair, Professor at Columbia, Global Economic Advisor at PIMCO)

Main Theme

This episode delves into the nomination of Kevin Warsh as the next Federal Reserve Chair by President Trump. Tracy, Joe, and guest Richard Clarida discuss how Warsh might approach the role, dissect critics' and supporters' opinions, the evolving relationship between the Fed and Treasury, central bank independence, and what a Warsh-led Fed could mean for market volatility, communication, the Fed balance sheet, and the framework for policymaking.

Key Discussion Points & Insights

1. The Unusual Politics and Reception of Kevin Warsh’s Nomination

• Broad Division: Warsh’s nomination has split both political and ideological lines, with support and criticism coming from unexpected quarters. (01:06–01:54)
  • Notable quote:
    “It is not any other nominee that I can recall, where you have fairly sort of mainstream, even sort of liberal names… saying there’s a great pick, etc. And then you have Paul Krugman and Neil Dutta saying it’s a terrible pick…”
    — Joe Weisenthal, (01:23)
• Warsh’s Shift: Warsh’s public stance on monetary policy has shifted from hawkish to favoring low rates, leading to questions about his true inclinations and independence. (01:54–02:29)
  • Notable quote:
    “There’s a big question mark about how and why he has suddenly seemingly gone from an inflation hawk to someone who’s advocating for low rates.”
    — Tracy Alloway, (02:01)

2. Fed-Treasury Relations and the Importance of Collaboration

• Warsh-Treasury Synergy: Clarida views Warsh as a sensible pick partly because of potential harmony with Treasury Secretary Scott Bessant. (04:24–04:53)

  • Notable quote:
    “It’s important… that the Fed work well with the Treasury. And so it makes sense along a lot of dimensions.”
    — Richard Clarida, (04:28)

• Nature of Collaboration: Clarida explained the value of close but not subordinate relationships, especially in fiscal agent matters and bank regulation. (05:29–06:33)

  • Regular meetings (often breakfasts) between Fed Chair and Treasury Secretary; informal but consistent lines of communication (06:50).

3. Warsh’s Track Record and Critiques

• 2008 Crisis Record: Warsh was considered more hawkish, but Clarida stresses the need to consider his full contribution during the crisis. (08:42–09:56)

  • Notable quote:
    “In the fog of war, inflation… forecasting can be… challenging. So I don’t think I would hold that particular episode against him.”
    — Richard Clarida, (09:21)

• Recent Rate-Cut Advocacy Contextualized: Warsh’s recent dovishness is in sync with a Fed committee already primed for further cuts. (09:56–11:17)

4. The Role and Limits of Fed Chair Power

• Power of Persuasion: The chair’s power lies in persuasion and agenda-setting, not unilateral authority—statutory requirement: major policy decisions require an affirmative committee vote. (12:26–17:54)

  • Notable quote:
    “Really, the power of the Fed chair is the power of persuasion because at the end of the day he or she only has one vote.”
    — Richard Clarida, (13:01)

• Evolution of Internal Communication: Under Powell, more pre-meeting bilateral discussions; the chair shapes meeting agendas and staff briefings.

5. Fed Policy Communication: Forward Guidance and Transparency

• History of Forward Guidance: Forward guidance only became a key tool after the 2008 crisis; prior chairs like Volcker and Greenspan ran policy without it. (17:55–24:14)

  • Notable quote:
    “It is perfectly possible to conduct a very successful monetary policy without any forward guidance. Paul Volcker did it for eight years and Alan Greenspan did it for 17.”
    — Richard Clarida, (19:03)

• Costs and Benefits: Forward guidance and quantitative easing suppress volatility but have diminishing returns and possible drawbacks, especially as rates normalize.

• Possible Higher Volatility: Less forward guidance would likely increase rate volatility, but maybe just to pre-crisis “normal” levels. (24:14–26:26)

6. The Fed’s Balance Sheet: Warsh’s Critiques and Challenges

• Warsh’s Consistent Criticism: He was publicly opposed to every expansion in the balance sheet since QE1. (27:40–28:30)
• Future Prospects: Calls for a new Fed-Treasury accord could lead to rethinking the size and composition of holdings. Shrinking the balance sheet is complex and interacts with banking system reserves and authority to pay interest on reserves. (27:40–32:37)

7. Economic Modeling and Supply-Side Debates

• Critique of Models: Warsh has expressed skepticism about Phillips Curve thinking and over-reliance on traditional models/data dependency. (32:37–33:12)

• Clarida’s Perspective: Understanding supply-side improvements is crucial, but so is acknowledging their limits within the full economic context. (33:12–36:43)

  • Notable quote:
    “The Fed doesn’t want to be in the business of raising rates because too many people have a job if that’s not inflationary.”
    — Richard Clarida, (33:30)

• Greenspan Era Lessons: Even during periods of high productivity, the Fed raised rates to preempt inflation or asset bubbles. (36:43–38:45)

8. Central Bank Independence under Political Pressure

• Potential Challenges: How can a new chair assert independence with a president who publicly pressures the Fed? (38:45–40:20)

  • Notable quote:
    “No Fed chair wants to go down in the history books as the Fed chair that squandered 40 years of price stability.”
    — Richard Clarida, (41:29)

• Committee as Backstop: High profile and confident committee voters will provide meaningful checks and balances.

9. AI, Productivity, and Inflation

• AI’s Mixed Impact: Short-term, the capex for AI could be inflationary before productivity gains materialize.
  • Notable quote:
    “Between now and year five you’re going to be doubling your tech capital spending investment which is adding demand before the productivity benefits show up. So it’s not a slam dunk…”
    — Richard Clarida, (43:49)

10. Congressional and Political Oversight Issues

• Recent Subpoena: Ongoing congressional oversight (e.g., subpoenas over Fed building renovations) raises concerns over long-term Fed independence. (45:01–47:32)
• Powell’s Legacy: Possible Powell decision to stay on the Board as governor is unresolved.

Notable Quotes & Memorable Moments (with Timestamps)

• On Warsh’s Support and Opposition:
  “It is not any other nominee that I can recall… mainstream, even liberal names… and then you have Paul Krugman and Neil Dutta saying it’s a terrible pick…”
  — Joe Weisenthal, (01:23)

• On Fed-Treasury Collaboration:
  “There are dimensions and domains where it would actually be a very bad idea for the Fed to be dominated by the treasury, but… a collaborative working relationship is important.”
  — Richard Clarida, (05:29)

• On the Power of the Chair:
  “The power of the Fed chair is the power of persuasion because at the end of the day he or she only has one vote.”
  — Richard Clarida, (13:01)

• On Forward Guidance:
  “It is perfectly possible to conduct a very successful monetary policy without any forward guidance.”
  — Richard Clarida, (19:03)

• On Volatility:
  “I think the most robust prediction I would make is [less forward guidance] would… increase to some extent market volatility, in particular interest rate volatility.”
  — Richard Clarida, (24:44)

• On Balance Sheet Reduction:
  “To get from here to there [a smaller balance sheet] is not straightforward. In particular, it involves the banking system.”
  — Richard Clarida, (29:56)

• On AI and Inflation:
  “Between now and year five you’re going to be doubling your tech capital spending investment which is adding demand before the productivity benefits show up.”
  — Richard Clarida, (43:49)

• On Fed Independence:
  “At the end of the day, I do expect that the Fed is an institution and… will have sufficient independence to raise or lower rates because of its institutional structure.”
  — Richard Clarida, (47:10)

Key Timestamps by Topic

• Warsh’s Nomination: Context & Politics: 01:06–02:29
• Fed-Treasury Relationship: 04:24–06:33
• Warsh’s 2008 Record and Recent Dovishness: 08:42–11:17
• Fed Chair’s Power and Meetings: 12:26–17:54
• Forward Guidance vs. “Old-School” Policy: 17:55–24:14
• Market Volatility & Forward Guidance: 24:14–26:26
• Balance Sheet Challenges: 27:05–32:37
• Economic Modeling (Phillips Curve, Data): 32:37–36:43
• Independence & Political Pressure: 38:45–41:29
• AI, Productivity Debate: 43:36–45:01
• Congress, Subpoenas, Powell’s Tenure: 45:01–47:32

Tone & Flow

Richard Clarida brings a measured, wonky, and pragmatic tone—balancing context, precedent, and institutional nuances. Tracy and Joe poke fun at the political theater and raise “anthropological” questions about Fed culture, but ultimately keep the conversation focused on substantive policy issues.

Conclusion

This episode is a masterclass for listeners keen to understand the Fed’s evolving culture, the realities of policymaking under political scrutiny, and the technical and institutional complexities facing any incoming chair—especially one with a complicated and sometimes contrarian track record. Clarida’s insights offer reassurance that the Fed’s structure and checks provide resilience, but the environment for central bank leadership remains as fraught—and fascinating—as ever.