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Let's turn to the day jobless claims coming in at a nice to thirteen against the estimate of two fifteen and the previous number of two twelve. Lisa, jobless claims and continuing claims speak to the same thing we've been talking about for quite a while. Low higher, low fire, low fire captured in jobless claims, initial claims being very low, low higher captured in some very sticky high continuing claims.
Yeah, and if you take a look at the initial claims four week moving average, it actually has gone lower from two hundred and twenty thousand in a week before to two hundred and fifteen thousand, essentially with this latest data so highlighting that. But you're right, continuing claims you've got to pay attention to, because it actually kicked upward to eighteen to one point eight six eight million, up
from one point eight two million. A question here about whether that means that people aren't hiring, whether that's the issue, whether this is just a staff foo tied to whether or some other disrupt or, whether this really does highlight that maybe initial job with claims don't really show the pain that people experience on under the surface.
This leib Marca has been frozen for quantu wile and this states of this morning speaks to the same thing. It's the right kind of downside surprise on initial claims, and it's the wrong kind of upside surprise on continuing claims. My McKay standing by, he's having to look at the data, and he's got a special guest for us as well.
Come morning, Mike, Good morning, John Well. Claims are not the only number out this morning that matters. We're also looking at import prices for the month of January on a month over a month basis, they're up two tenths of eight percent after a decline in the prior month. And we're also seeing ex petroleum up four tenths. That puts kind of a lie to the idea that foreigners are absorbing the tariffs because the prices should go down
if that's the case. Also, productivity up two point eight percent, which sounds good, except it was up by five point two percent in the third quarter, so not as great a news as perhaps people had hope. Let's get a read on how the economy is doing. Now. You mentioned a special guest, and indeed we do have one, Tom Barkin, president of the Richmond Fed. We're here at the Richmond
Fed with him. And I know you haven't an attence to really look at these numbers, but in general, the low fire, low higher economy and the tariff affected economy seem to be about what they have been.
Well, it's always good to come on right after a bunch of data comes out, but I wouldn't be as negative on the productivity as you just were. Two point eight percent on a last ten or twenty or thirty year basis is a really good number, and I think we are seeing companies invest in productivity and deliver it. Some of that technology AI, but I think a lot of it is you were caught short workers three years ago.
You invested in new processes, new staffing models, automation, and people are seeing the results.
Today and that holds down inflation.
It does hold on inflation, and it allows people to maintain margins at times when their input costs might be coming up.
Well, input costs are probably going up for people who use petroleum. So I want to start there with Obviously, the IRN war just started, but what's your gut feel about how that's going to impact prices and the economy.
Don't have any sense on how long it's going to take or what the implications are going to be. Obviously, you watch oil prices. While the US is no longer in that importer, it's still the case that the price at the pump matters a lot in terms of sentiment, in terms of crowding out other spending. And so I'm just watching prices at the pump. They've jumped up over the last week. You can see that when you drive around.
But of course no one knows whether this is going to be short term or long term, and so we'll just see where it goes.
Well, back in the nineteen seventies, we had the oil price shock and we had gas lines and people were miserable and having to pay all this money, and so they've had eased into that that turned out to be a mistake. Does this put on hold ideas for the time being of continuing to cut rates.
Well, I think we'll go meeting by meeting and we'll see what we see when we get there. Gas prices, obviously, if they're up, that is inflationary. Textbook monetary policy would be you look through a short term shock, but you don't look through a long term shock, and I think that's a lot of the assessment people are going to have to make.
The Open Market Committee before the Iran War started. Basically, the views seem to be that we're at peak tariffs now and inflation will start to come down in the latter half of the year. But you throw this into the equation, where would you put yourself in terms of thinking about the progression of inflation and when you might have enough information to decide whether a cut is worthwhile or not.
Well, we'll have to see how it evolves if you go back to the fall. The conversations I have with businesses suggest to me that they believe their pricing power
is very limited. Consumers are exhausted by inflation affordability. People are pushing back, whether that be not purchasing or private label, or trading down to lower price retailers, or repairing rather than replacing, and so in the cut conversations you have, you do have a sense that we're on the backside of this inflationary period, we'll head back to normal, and the numbers in the fall apps and the government shut down, we're saying much the same thing I will say over
the last month, and with the PC numbers that we're expecting next week, you've got a couple months of relatively high inflation. That certainly puts pause to any conclusion that we're done, you know, fighting this, But we'll see where we go.
Well slicing the business leaders are telling you a little more closely. They know consumers are price sensitive and they're worried about that. But are they also in a situation where they've had to absorb too much and if we see more price increases of inputs, they're going to have to raise prices.
Well, that's when we come back to productivity as being so key to this whole story. Because most every business I talked to last April that got tariffs was going to pass it on. It was just clear, and you know, they needed to maintain margins that consumer was going to have to take it. And when they experiment with that, they got a lot of push back, and so prices didn't increase the way that a lot of those folks expected. Now, their margins have been very steady, and so corporate margins
are quite healthy. Earnings were up I think thirteen percent fourth quarter a year every year, and that's because productivity has allowed people to absorb these hits without you know, having effect margins and having to pass it on fully in prices. And when you start seeing good productivity numbers over and over and over again, that gives you some hope that can continue.
What are you hearing from businesses about the other side of your mandate employment? Obviously we're seeing low, low fire continue.
Yeah.
I have to say the businesses I talk to when they describe the labor market, they describe it as pretty open, maybe even loose, availabilities, high turnovers low. I was with a bunch of poultry processors in the Eastern Shore who told me that even after losing workers you know, to temporary protected status, they've been able to replace them relatively relatively easily. And if you can replace poultry workers, I
think you've got a reasonably open job market. And of course, going back to the fall, that's what we saw as unemployment was ticking up. I will say the last couple months of employment data has been reassuring. As you've seen the unemployment rate came down, jobless claims have stayed low, and so you still hear a relatively loose labor market. You still hear people not hiring but not firing, But the numbers are even better than I think.
What you hear, Well, it sounds like you think at this point the risks to inflation and to employment are roughly balanced.
Yeah, if you go back to the fall, I think a lot was behind our moves was the sense that the risk of the labor market were up while the risk of inflation were down. The data that's come in over the last couple months, what I think suggest it's moved in the other direction.
Well, you mentioned that you know you're going to get probably an elevated PCE reading coming up at this point. Is monetary policy set at a place where it can help you bring down inflation or is it even too tight? Where is it on a scale?
Well, I expect we're still modestly restrictive and that should help as we try to grind out the last mile here. But again we'll have to see. I definitely take note of the continued strength and demand, and so I don't think we're highly restrictive. If you were highly restrictive, you'd see a lot more impact on demand, which has stayed very healthy. I was reflecting it was four years ago that we first started increasing interest rates in March of
twenty two. And if you had predicted then that we would have demand growth of the sort we've had over the last four years, you would have been a severe outlier.
Let's talk about your new boss, who's coming in in very I guess Kevin Worsh's nomination's finally gone up to Capitol Hill. A lot of people think the FED chair can walk in and just change interest rates, but they don't. You all have a vote and his basic powers in persuasion. How do you think he'll do. How do you think the dynamics play out when somebody new comes into the building like that?
Well, it'll be a new experience for me too, since Jay was in the building when I started eight years ago. I mean, I like and respect Kevin, and I trust he'll do a good job, and I'm looking forward to working with him. You have a lot of smart, opinionated people in the room, and so you'll want to work
with those folks. I think there's also a lot of respect for the chair and what the chair does to take a lot of the visible noise that happens from markets and the press and others, and so I think, well, I look forward to working with him, we'll see where we go.
He makes the case for a number of changes at the FED, one of which would be a smaller balance sheet. Where do you come down.
On it, I mean, instinctively, I like the idea of the FED having a smaller footprint and financial markets. I think, subject to still being able to operate monetary policy and control rates well and subject to not having severe adverse reactions in the markets. But it's instinctively it's an attractive idea. May if we can find a way to make it work in the context of the rest of what we're trying to do.
He's also said he'd like to have a little bit less conversation from FED officials and maybe more coordinated interactions with the public. What do you think about that? Maybe asking you not to speak.
As much, Well, that would give you some more time, So I'd be happy with that.
Now.
What I try to do in my outreach is very, very district oriented, and so I was in Martinsburg, West Virginia yesterday. I was in DC. The day before, I was in Hartford County, Maryland. Last Thursday, I was in Northern Virginia. On Tuesday, I was at Baltimore on Wednesday, and in each of those places, I'm actually not talking to you. I'm talking to chambers of commerce and rotary clubs and people who are interested in what's happened in
the economy. And I think there's real value to being in front of these folks and putting a face on the FED. The design of the FED was a regional design from the start, and I think part of it was people wanted to trust and understand the people who are making these important decisions, and also to feel listened to. And I take a lot of pride in how much interaction and engagement I have across my five states and district of Columbia, and I hope to continue doing that.
But to me, it's not and you know this because we've talked a lot before. I'm not trying to talk about how many rate cuts I have in my SEP for the next nine months. I'm trying to talk about here so I see the economy and ask them how are you seeing the economy? I think I get valuable insight that way.
Well, last question, would you like to see Jay Powell stay on as a FED governor after his term as chair is up?
I like Jay A. Ton I think he's done a spectacular job, and I want Jay to do absolutely the best thing for Jay.
Okay, Tom Barkin, thank you very much. The President of the Richmond Fed will send it back to you.
McKay, Thank you, sir. And that's a top tip for anyone that gets aunced that by Mike mckaanny time soon. Just repeat what Tom bak and just said. I want what's best for Jack.
So not going to answer, but I think it was a great answer. Frankly, honestly, what he said was actually parsing through the vagaries that the FED is dealing with quite well, talking about how he still sees modestly restrictive policy, not exactly accommodative or neutral. And they did say that companies were having trouble passing along pricing, but that the recent inflationary data does give them pause. So sort of
the dual mandate kind of balanced right now. He seems like he's kind of wanted to be waiting on the sidelines for more on inflation.
On the energy shock, it keeps coming back to the same thing, the calendar. It depends how long this goes on for If it's a short term shock, the textbook says his words, look through it. If it's longer, the textbook says something else, how much longer is it going to be?
Yeah, and this we don't know, And that I think is going to be a really important driver, and frankly, not just for the feder Reserve, for the entire market to reassess exactly what that impact is notable to me that President Barkin, Richard Fed. President Barkin was talking about how it really matters how much oil prices are for sentiment, for consumer sentiment, and that that will be potentially a disinflationary force in terms of their ability to keep on going out and buying things.
Michael, making you catching up with the Richmond FED President Tom bulk in there just moments ago.