PIMCO’s Richard Clarida Talks AI, US Economy

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**Romaine Bostick** (0:07)
Between everything going on with AI, the big IPO with SpaceX, raising rates over at the ECB and a lot of concerns about geopolitics, who better to kick the show off with than Richard Clarida, Managing Director and Global Economic Advisor at Pimco and former Vice Chair over at the Federal Reserve Board of Governors. Rich, great to have you here.

**Richard Clarida** (0:25)
Glad to be with you again, Romaine.

**Romaine Bostick** (0:26)
I do want to take a moment to talk about the report that you and Dan Iveson and others put out yesterday, your annual Secular Outlook. There are a lot of themes in there, but obviously one big thing that you couldn't ignore was AI.
You kind of described it as a potential disinflationary force because of increased productivity, maybe wage compression, but also presenting a certain degree of financing risk as well. Kind of square that circle for us.

**Richard Clarida** (0:50)
Well, you know, Romaine, AI has gone from really being a wild card what if to a major driver of economy and markets the next five years. Right now, we're seeing it in this CapEx boom. We talked about not just in the US., but really a global CapEx cycle, including defense and potentially energy security. But also at the margin, a lot of this AI is being financed in the credit markets and in the bond markets. You know, Pimco has been active in that in certain select deals. And so, you know, like it or dislike it, investors are going to need to factor in AI and all their calculations going forward.

**Romaine Bostick** (1:25)
Well, one thing I thought was interesting there, and you talk about the CapEx boom, obviously not just in AI, but you also mentioned defense and a few other areas. But I mean, you've been doing this a long time. There was a criticism for years, decades really, that there wasn't enough CapEx spending coming out, of course, for America, that they were taking their cash and just using it for buybacks and things like that. And now we're finally getting it and everyone's wringing their hands over it. So I know there's got to be a balance. But when you think about the potential for an increase in productivity, something that's been relatively absent, at least in any kind of headline numbers, for years and decades, are you kind of excited that maybe you're finally here?

**Richard Clarida** (1:57)
Oh, certainly. I want to be very clear. We think AI is a transformative technology. In fact, if anything, we think the productivity benefits in boom from AI could happen sooner than a lot of folks believe. But we're also humble. We don't have a crystal ball. We think there's a wide range of outcomes. But let me be clear. We think this is how capitalism and financial markets are supposed to work. Attractive investment opportunities receive funding. And as I said, we participated in some of those deals as well. And I think and expect we'll continue.

**Katie Greifeld** (2:27)
Well, it's interesting how this is all being financed because you're seeing a lot of this coming through in the private markets, but it's making a big splash in the public markets as well. You think about the hyperscalers and some of their plans for borrowing for this year. And I wonder how you're viewing that over at Pimco. You think about a world where credit spreads are so, so tight and the fact that we have this influx of supply, hasn't yet really made a dent on those spreads.

**Richard Clarida** (2:53)
Well, there are a couple of things going on. First, a lot of the companies that are issuing and borrowing are very, very prosperous and profitable companies. And so that's a big difference from some of the previous capex cycles where we've seen where a lot of borrowing is companies that don't have a lot of revenue or cash flow. So that's one big difference. But Katie, you bring up an excellent point. We do think we're in a world where investors are gonna need to do their homework or hire firms to manage their money that does their homework because you need to look at the details on the deal. You need to look at the way the deals are structured.
And the details will matter. We believe that if you're going to provide liquidity in public markets, you should be paid for providing liquidity in public markets. And so we look at each deal on its own merits.

**Katie Greifeld** (3:40)
And talk to us a little bit about how this is wrapping into the view that you put out yesterday about the credit loss cycle. You sort of think about the heavy spending that we're seeing on AI.