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Our next guest is going to give us this insights on the economy, the feds, great town, and so much more to it as at the table, Pimco's global economic advisor, Richard Clarida, former Fed vice chairman. Good morning to you. Normally, I'd say, what do you think of the data? But we don't really have data. Or maybe we do. What data are you looking at right now?

Host

Richard Clarida

You know, you get things like ADP on the labor market. There's something up in Boston that's scraping prices from Amazon. So you're getting some numbers, but it's obviously not the gold standard, which is the government data, which I assume we're gonna start getting pretty soon.

So what do you think is actually happening here under the covers?

Host

Richard Clarida

I think the labor market has been slowing all year. The challenge for Powell and the committee is whether it's slowing because of demand for labor or because of supply of labor, immigration enforcement. As of September, they've judged that it's really a demand story, which is why they cut rates in September on a risk management consideration. There's some evidence of slowdown in wage inflation, but it's a murky picture at best.

You know, we just had Lisa Su sitting at the table where you are. AI is a big question mark about employment. Do you think that's having any measurable impact yet?

Host

Richard Clarida

Anecdotally, employment for entry-level coders is way down. It does appear to be moving in that direction but it's too soon to tell. The question is the pace and the sectors impacted.

We have employment on one side and inflation on the other. Scott Boorstin says inflation is decelerating but there are pockets where inflation is increasing. What would you tell Jay Powell about that?

Host

Richard Clarida

Inflation is basically treading water around 2.8 or 2.9%, similar to two years ago. The Fed could argue it'd be lower without tariffs. Inflation is not falling and has been above target for about six years. So there is a risk to the labor market and a risk that inflation is too high and it may take a while to get it down.

If you lower interest rates, you may worsen inflation but improve employment; if you raise rates, you do the opposite. What do you do?

Host

Richard Clarida

It's a judgment call. The committee is divided. People can look at data and reach different conclusions. There's risk management on both sides of the mandate, just not on the labor market.

With your PIMCO hat, and looking at treasuries and equities, where are we in this cycle if it's a cycle?

Host

Richard Clarida

There's optimism about AI. Earnings season was pretty good. Markets have formed judgments that the Fed is cutting and can cut more if economy slows. US productivity story favorable compared to rest of world.

When at the Fed, did you consider market reactions before decisions? Stock market now doesn't show much reason to cut. This is a bifurcated economy. Thoughts?

Host

Richard Clarida

Markets are forward looking and build in expectations of Fed actions. Ben Bernanke called this the Hall of mirrors problem. Officials try to look through reflexivity. There's a fundamental story of growth, productivity, and innovation.

It's first time some Fed dissent. Is dissent more than average?

Host

Richard Clarida

Historically, dissents occurred during my time. For example, in 2019 three out of ten votes were dissents. It's healthy, especially at this cycle stage. Nobody wants group think.