Former Fed Vice Chair Richard Clarida Talks bonds and retirement

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, podcasts, radio, news.

**Tom Keene** (0:07)
Richard Clarida is with us with PIMCO of Columbia University, always, and always the vice chairman, former vice chairman, I should say, of the Federal Reserve System. And I think, you know, we're going to straddle here between Bloomberg money and everything else.

**Scarlet Fu** (0:19)
Yeah, and we got to start with what we saw in the bond market this week, because we had a sell-off, and the 30-year yield this week reached a 19-year high, 5.26%. Rich Clarida, does the sell-off in the long bond tell us anything about the US economy, and therefore how people's prospects might change?

**Richard Clarida** (0:36)
Well, there are a lot of reasons bond yields can go up and down, not just the Fed. The Fed is an important part of it. What I would point to is that, so far, Kevin Warsh has been chair, really, only six, seven weeks, but an important measure in the bond market, which is break even inflation. So, sort of, trader's expectation of inflation is at or below where it was at least out to 10 years when he became chairman. But certainly, the reaction during the press conference was probably not one that was welcome.

**Scarlet Fu** (1:04)
Right. We know the first Trump administration cared a lot about the stock market. And the second one seems to have added the bond market to its list of things that it's watching. Which part of the bond market does this administration care most about? The 30-year yield, the 10-year yield?

**Richard Clarida** (1:19)
Oh, my goodness. I'm not sure. I would defer probably to Secretary Besson. I do think at one point he may have said that he's focused more on the 10-year yield than he is on the Fed funds rate.
Well, so much of the economy, people borrow long for car loans or mortgages or corporate loans. And so that's probably what he had in mind.

**Tom Keene** (1:36)
So what we're going to do here, it's Bloomberg money. We do personal finance, we do wealth management, we do retirement. But we also have Richard Clarida where this is in the heart of this debate over the chairman of the Fed. So it's going to be a little bit sort of like Scar Fu and Tom doing Bloomberg surveillance, like more. You can protect the children at home.

**Scarlet Fu** (1:55)
The lines are blurry.

**Tom Keene** (1:56)
Yeah, protect the children at home. Surveillance for that. Okay.
So former vice chairman, with great respect, I don't want to turn this into a history lesson. But you have Warsh, nominally of Stanford, talking about the Lucas critique and then going over. What people don't know is you're directly involved with this. Let's first listen to Chairman Warsh on Wednesday.

**Kevin Warsh** (2:19)
Some version of the Lucas critique should remind us that when we talk about measures of inflation or something else and we describe those measures as being consistent with our objectives, we might make them such that they're not very good measures or very good objectives.

**Tom Keene** (2:40)
The Chairman, before we have the questions from Michael McKee of Bloomberg, the world lit up and along with legit cred out of Lucas' Chicago was fiery. The news conference was rich in philosophy process and institutional aspirations but poor in operational guidance. The absence of Clarida-like analytical specificity appears to have spoken louder than Warsh's words. So Lucas did what he did.
CGG, Clarida, Golly and Gertner reinvented modern economics with something called dynamic stochastic goal, general equilibrium theory. We come out now and as Claudia Somme says, we have a Chairman who's not sure what he's looking at in inflation. How does he get the barrels back on? Does he need to reaffirm PCE is the inflation series?

**Richard Clarida** (3:32)
Well, I think what he said at the press conferences is for now until next January at least, that's going to be correct. The Fed adopted that again in January. He left open the possibility that the task forces could recommend other measures. They could go to an average. Instead of picking one index, they could look at CPI, PPI. There are a lot of things they could do. But I think Anna, as usual, raises an important point, is that an inflation targeting central bank needs to be clear about what it is it's targeting. It can and may evolve. And so I think that will be important.

**Tom Keene** (4:04)
Very, very importantly then here, if we need to get the system back with a confidence about the Fed, how does he do that at Jackson Hole? Does he have to reaffirm, as Sam says, that inflation is the appropriate measurement and not a policy?